VAT Compliance Programs for Europe: Part 1 – VAT Considerations
This business aviation blog post is part of a series on value-added tax compliance programs.
Value-Added Tax (VAT) in Europe can significantly impact your operational costs while in the region. While many business aircraft operators reclaim VAT after the fact, this can be an expensive and lengthy rebate process. The best approach, when possible, is to exempt (or zero-rate) VAT at time of Jet A-1 fuel uplift.
The following is an overview of what you need to know:
1. VAT – the basics
VAT is a tax that applies to the purchase of goods and services in Europe. VAT rates in the European Union (EU) and Europe range from about 5% to 27%. More information on rates for each country may be found here. VAT usually applies to your total billings – every line item on your invoice. VAT is added to airport fees/services, local taxes, and even mineral oil taxes.
2. The good news
In some cases, depending on your type of operation and next destination, VAT on fuel can be exempted (or zero-rated) at the pump. While this is primarily available for qualified charter (non-scheduled commercial) operations, it can in certain cases apply to private non-revenue business and even pleasure flights. Your alternative is to pay VAT at the pump and then reclaim it later – if you’re qualified to do so. Be aware, however, that service providers who reclaim VAT typically charge fees in the range of 30% of taxes recovered. Also, it can take a long, long time to receive VAT rebates – from three months to as long as seven years. The best-case scenario is to always try to exempt, or zero-rate, VAT charges at time of Jet A-1 fuel uplift when possible.
3. European VAT rates
Average VAT rate in Europe is about 20%, but rates vary by country and can change on a frequent basis. Italy, for example, has made three different VAT percentage proposals within the past year. Switzerland has lower-than-average VAT at 8% while Hungary, currently, sports the highest VAT rate at 27%.
4. Exempting VAT
Both charter and private non-revenue operators may sign up for European VAT compliance/exemption programs. These programs offer VAT exemptions per company and not per aircraft. As long as operator status does not change, the overall declaration you’ll make will cover all of your aircraft. To sign up for a VAT compliance program, you’ll need to complete appropriate declaration forms. The reason for this is to ensure that you qualify for exemptions, based on your type of flight (charter, private business, or private leisure). It’s recommended that operators update VAT program information with their providers on an annual basis or in some cases more frequently if operator status changes within the year.
5. VAT exemptions for private operators
Opportunities to exempt or zero-rate VAT for private operators vary across Europe, so it’s best to confirm the current situation with your 3rd-party provider. Sweden is unique in that it does not charge VAT on any aviation fuel uplift. There are four other areas within Europe that currently provide VAT exemptions for qualified GA private operations. Italy does not assess VAT on business flights departing to non-EU destinations. Likewise, the UK does not charge VAT on fuel uplifts connected with non-leisure flights if your next destination is outside the UK. Spain zero-rates VAT for all private business flights, but not for private leisure operations. VAT on fuel is zero-rated for all GA operations out of Shannon (EINN) so long as the destination is outside the EU.
Knowing VAT rules prior to your operation to Europe gives operators the best opportunity to exempt VAT charges at the pump – when qualified to do so. While most VAT exemptions are for charter operations, private non-revenue flights, in some cases, can also benefit from zero-rated VAT on European fuel uplifts.
If you have any questions about this article or would like more information on VAT compliance programs, contact me at firstname.lastname@example.org.
Stay tuned for Part 2, which covers more information on VAT Compliance Programs.