Consider a jet aircraft with a maximum take-off weight of 16,000 kg. As per the given table, a jet of this weight falls under the “Large” category, hence the effective tax rate would be 20% of the standard VAT rate of 19%, equating to 3.8%.
Suppose the initial value of the aircraft is €60,000,000. A lease agreement is made for the maximum allowable period under the VAT scheme, which is 60 months. At the commencement of the lease agreement, the lessee will pay 40% of the aircraft’s value, and the balance will be payable over the remaining 59 months. Additionally, a purchase option value is set at 2.5% of the initial value (€1,500,000), and a profit margin of 5% must be maintained for Corporate Income Tax purposes.
Let’s break down the VAT due:
VAT due upon payment of the 40% at the beginning of the lease period is calculated as (40% * €60,000,000 * 3.8%), resulting in €912,000.
VAT due on all the regular monthly installments is calculated as (60% * €60,000,000 * 3.8%), amounting to €1,368,000.
VAT due on the additional 2.5% spread over the regular monthly installments is calculated as (2.5% * €60,000,000 * 3.8%), which equals €57,000.
So, the total VAT due on the lease scheme is €912,000 (initial VAT) + €1,368,000 (VAT on installments) + €57,000 (VAT on purchase option), amounting to €2,337,000.
The effective VAT rate for this transaction would be (Total VAT / Initial value of aircraft) * 100, which equals (€2,337,000 / €60,000,000) * 100 = 3.895%. Thus, the effective VAT rate for this transaction is approximately 3.895%.
Without the leasing scheme, the VAT would be applied to the full value of the aircraft at the standard VAT rate of 19%. So, the total VAT without the leasing scheme would be (€60,000,000 * 19%) = €11,400,000.
As calculated in the example, with the leasing scheme, the total VAT paid would be €2,337,000.
Therefore, the total saving due to the leasing scheme would be (€11,400,000 – €2,337,000) = €9,063,000.
In conclusion, by opting for the leasing scheme, the lessee can potentially save approximately €9,063,000 in VAT payments. This calculation highlights the potential financial advantages of the leasing scheme for companies operating large aircraft within EU airspace.