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Special focus -Tax-efficient aircraft registration: Choosing a jurisdiction may be a business and lifestyle choice but service and reputation are priorities
The Isle of Man and Malta are among European jurisdictions that highlight the issues and advantages inherent in registering an aircraft offshore.

The Isle of Man and Malta are among European jurisdictions that highlight the issues and advantages inherent in registering an aircraft offshore. However paradoxical it may seem, it is not inaccurate to state that Malta can claim to be an onshore jurisdiction with offshore advantages.

DC Aviation's Malta-based Stanley Bugeja explains: "Perhaps one of Malta's biggest advantages is that it is not an offshore jurisdiction but an EU country in the Eurozone area with quasi-offshore advantages. Furthermore Malta is not selling itself as a flag of convenience but a flag of excellence. Malta is banking on its experience in the shipping and yachting industry, where it is one of the most highly respected flags worldwide, and the jurisdiction's main aim is to emulate these successes in the aviation sector."

Tax efficiency is becoming an increasingly important driver in the owner and operator decision of where to locate (see accompanying article European operators face taxing issues, page 13). The wider issues include the status and reputation of the jurisdiction; the expertise and contacts of its professionals; geographic convenience and the quality of its facilities and associated services. There is also a need to ensure registry requirements enable the staff to meet the owner's individual needs and that it has the staff and expertise to provide a prompt and cost-effective registration service.

Advantages for owners and operators are that there is a good range of jurisdictions offering competitive services to choose from but this also ensures that making the right decision is complex.

Bugeja says the Maltese aircraft registration act of 2010 is designed to place Malta at the forefront of Europe's aviation jurisdictions. He lists Malta's main advantages as the provision of:

  • Good transparency of rights and interests in the aircraft;
  • Stimulus for the development of finance and operating leases of aircraft;
  • Clear rules on the tax treatment of the finance charge combined with tax deductions that are available to finance lessors complemented by capital allowances for lessees;
  • Broader registration possibilities.

There is also an absence of a withholding tax on lease payments where the lessor is not a tax resident of Malta and competitive minimum depreciation periods for aircraft.

Bugeja says: "The private use of an aircraft by an individual who is not resident in Malta and is an employee or officer of an employer or company or partnership whose business activities include the ownership, leasing or operation of aircraft used for international transport does not constitute a taxable fringe benefit."

Malta, he adds, implements the provisions of the Cape Town convention on international interests in mobile equipment and its aircraft protocol. "Effectively this grants secured lenders a higher degree of protection and more effective remedies while allowing lower borrowing costs," Bugeja says. "Over the past five years, Malta has slowly but surely been registering significant growth in all sectors of the aviation industry. It has attracted the likes of SR Technics and Lufthansa Technics as well as Comlux and DC Aviation. The number of AOCs issued has risen to 14 and we expect a continued increase."

Malta, he points out, is an EASA country held in the highest regard by the FAA and ICAO. "It is a geographically convenient English-speaking jurisdiction set on making aviation, and particularly business aviation, feel at home. The government, through the ministry for infrastructure, transportation and communication,

Transport Malta, the civil aviation department, and Malta Enterprise, is working together with the Malta Business Aviation Association, to deliver one of the most respected and popular aircraft registration jurisdictions." Transport Malta, Malta Enterprise and the MBAA are participating for the first time together in MEBA.

Fast growth

The Isle of Man aircraft registry is in its fourth year since its launch on May 1st 2007 and the number of registered aircraft is fast approaching the 300 mark, according to Graham Sowrey, senior administrator, Intertrust Services (IOM). "There was a 63 per cent growth during the third year and the Isle of Man Register is now the fastest growing offshore corporate aircraft register in the world," he reports.

The island's 'M' register was established to provide a high quality alternative for private and corporate jets and twin turbine-engine helicopters.

Sowrey says: "The expansion of the register has seen the increase of a very professional and enthusiastic team at the aircraft registry together with 14 authorised airworthiness surveyors based throughout the US and Europe."

But he points out that the registration of fixed-wing aircraft under 5,700 kgs is not permitted other than for Isle of Man residents or businesses operating from the island.

The Isle of Man says its development of a shipping register and the super yacht management has providing a sound experience and basis for the establishment of an aircraft register.

Sowrey says the benefits of using the Isle of Man include:

    High regulatory standards, service levels and quality international reputationDedicated European-based private and corporate aircraft register Neutral nationality registration of the prefix 'M'Competitive scheme of chargesSecure mortgage register to provide comfort to any potential lendersAbsence of insurance premium tax as opposed to five per cent in the UKEuropean time zoneAAA rated jurisdiction and professional infrastructure with experience in aviation finance Status on the OECD 'white list' of countries complying with the global standard for tax co-operation and exchange of information Clear and simple taxation regimeStable legal and political environment.

Sowrey adds: "The jurisdiction has the capability to provide experts in finance, fiscal issues, law and asset ownership and will work closely with clients and advisers in order to fully understand their requirements. Comprehensive aircraft management should include and cover import, legal and safety regulations, finance, insurance, fuel bunkering, maintenance, concierge services and project management, whatever the specification of the aircraft."

He says: "The best professionals understand the pleasure and enjoyment of owning a high value jet. At the same time they appreciate the financial commitment that is made by the client and will optimise the investment and guide the client through all aspects of the ownership experience, easing the burden of any complex issues and, at the same time, create viable financial and management solutions."

International focus

Sowrey points out that it is important for jurisdictions to attract firms with offices around the world that can provide individually-tailored packages for internationally- oriented clients.

Douglas-based ICM Aviation Ltd says the Isle of Man is quickly becoming the leading jurisdiction for the registration and ownership of high quality private and corporate owned business jets and turbine-engine helicopters.

"It is a first class service with no unnecessary bureaucracy and many of those who work at the registry have worked with other civil aviation authorities throughout the world and offer a wealth of combined experience," says Martin Kennaugh, head of aviation. "The success of the registry is down to its speed and efficiency. We know the requirements for applications and their processing and this helps to promote the process for the client."

Unlike other aircraft registries, he says, the Isle of Man's is not intended to be a profit-making venture for the government. "Its charges only cover its operating costs and it does not impose a requirement that aircraft are owned by Isle of Man companies. Bodies incorporated in the Commonwealth and undertakings formed and managed in European economic area states are all qualified to own Isle of Man registered aircraft. Having said that, an Isle of Man Company makes a perfect aircraft holding vehicle, being tax neutral and cost effective."

Kennaugh observes: "Some owners find the political neutrality of the 'M' prefix to be desirable while others enjoy inventing registration marks that are personal to them or their business. The registry permits the registration of out-of-sequence marks and the transfer of registration marks to future aircraft."

Aircraft, crew licences and maintenance organisations that comply with reputable international standards are generally accepted by the registry without the imposition of further requirements, such as modifying the aircraft or retraining crew.

He stresses: "The island is one of the world's most respected and well regulated international financial centres, providing a stable political and legal environment in which to do business. "It is the only international financial centre with a dedicated business aircraft register that appears on the OECD 'white list' of countries complying with the global standard for tax co-operation and exchange of information."

Isle of Man corporate and trust structures, Kennaugh points out, are frequently used by major international organisations for aircraft ownership and financing transactions. ICM Aviation's sister company, Inter-Continental Management Limited frequently forms and manages structures such as these.

"One unexpected benefit of the registry has been its role in creating a favourable impression of the Isle of Man with chairmen and senior executives of multinational companies," he adds. "Being held in high regard by the corporate decision makers can only benefit the Isle of Man when it comes to winning business in competition with other jurisdictions. Indirect benefits to the Isle of Man are harder to quantify but are likely to be more valuable in the long-term. The Isle of Man is probably the most cost effective jurisdiction in the world for corporate and corporate-owned business aircraft."

Hard choice

Choosing a jurisdiction can be hard and companies such as Switzerland's AeroEx point out that it is crucial to register the aircraft with the most suitable "offshore" authorities.

It warns: "With the new upcoming EASA regulation for commercial and non-commercial air transport oper-ating into and within the EU coming into force in 2012, all registrations performed in different countries will be more difficult. This will decrease the tendency, for example, to register many aircraft in the United States, Cayman Islands, Bermuda and Isle of Man in order to act under less bureaucratic oversights."

AeroEx offers counselling and assistance on the choice of the right register as well as training on issues such as third country operators and EASA port organisation requirements.

Mark Byrne, a director of ICM Aviation of the Isle of Man and Martyn Fiddler Associates of Stansted airport in the UK says that wealthy individuals will also select aircraft registries that provide lifestyle and business advantages.

"We are already heavily involved in the yachting industry providing registration services and holding companies. The Isle of Man is a very good jurisdiction from which to offer the same kind of services for aircraft."

He adds: "It makes sense if people already have yacht assets looked after in the Isle of Man for them to consider locating other assets, such as aircraft, in the same jurisdiction. They will share similar advantages with the advantages of dealing with one set of professionals that they know. It would be a yacht-aircraft one-stop-shop."

Martyn Fiddler is a specialist in VAT and European Union customs regulations. It is owned by ICM which in turn is owned by Inter-Continental Management. ICM will use its expertise in company incorporation and related financial services.

Byrne says: "We deal with aircraft ranging from 747s to King Airs but our clients tend not to deal in small aircraft. They rarely deal in aircraft worth less than US$1 million to US$5 million or more. A great many long range aircraft are owned by potential clients."

Simcocks is another company preparing its marketing plan. Phil Games, ceo of Simcocks Advocates and a director of Simcocks Yachts (Affinity), says: "I have been talking to clients including one who has got three jets within his organisation. A great deal of interest has been expressed and it is just a matter of how many will want to change aircraft jurisdictions and move their aircraft to the Isle of Man. We as a company have scores of people that have shown initial interest."

Katherine Ellis, manager of the Anglo Irish Trust Company based in Douglas, Isle of Man, says: "The commercial yacht register has been a big success. It has established the Isle of Man as a place that gives excellent customer service from known staff at a local office. That will apply to aircraft registrations. We will be happy to market our range of aircraft services in conjunction with the official launch of the register by the Isle of Man government."

Brian Johnson, director of civil aviation, says the Isle of Man will offer an aircraft registry that combines credibility for technical requirements with flexible and attractive fiscal terms of an international financial centre.

That is a combination that all offshore centres aspire to. It is up to owners and operators to ensure that the jurisdiction they pick is suited to their personal requirements.

Issues to examine and questions to ask

    Does the registry have an excellent reputation for safety and service?Is your aircraft compatible with the registry as currently specified?Can your pilot's type rated license be endorsed by the registry without the necessity for training or re-training?Is the registry user friendly and led by people who care about aviation?Can you choose from a wide selection of registration marks to make up your own names or phrases?Can you transfer your registration mark from aircraft to aircraft?Is the registry cost effective to register and maintain?Does the registry provide standardised manuals for things like RVSM?Is your aircraft holding structure compatible with the registry? Is the registry in a convenient time zone?