Tax Guide to Finance Leasing of Aircraft
Where finance leasing arrangements of aircraft do not fall within the scope of Legal Notice 369 of 2005, the Inland Revenue Department has decided that in such special case of the finance leasing of aircraft, the following tax treatment is to be adopted for each year for the duration of the finance lease:
- the lessor is charged to tax on the annual finance charge, namely the difference between the total lease payments less the capital element divided by the number of years of the lease;
- the lessee is allowed a deduction in respect of the (i) the finance charge; (ii) maintenance; (iii) repairs; and (iv) insurance;
- the lessee is allowed capital allowances in respect of the aircraft and the parties may not opt to shift the burden of wear and tear onto the lessor;
- where the lessee exercises an option to purchase the aircraft on the termination of the finance lease, and the lessor is not trading in the purchase and sale of aircraft, the purchase price received by the lessor shall be considered to be of a capital nature and no tax thereon shall be payable by the lessor.