So you are thinking of buying a Jet?

Introduction Buying an aircraft and setting up a suitable ownership structure is a complex and time consuming process. It requires significant professional input from legal, corporate and tax experts. Historically, the process of identifying the most suitable jurisdiction for ownership and the establishment of a suitable structure for the aircraft was relatively straight forward. However, with in excess of 70 low tax jurisdictions, together with an array of different special purpose vehicle (SPV) options, making the right decision can be challenging, without professional advice.

Which Jurisdiction? Whilst there are numerous low tax jurisdictions that could be used for aircraft ownership, the reality is that a much smaller number of jurisdictions are actually suitable. In particular, where aircraft finance is required, some of the key attributes of the chosen jurisdiction should include:
1. Political & economic stabilityrn2. High regulatory standards and reporting requirementsrn3. Effective and business friendly legislationrn4. A competitive VAT & tax regimern5. An experienced network of aviation professionals rn6. A secure mortgage registerrn7. Comprehensive banking facilities rn8. A reliable telecommunications infrastructure
rnJurisdictions that meet the above criteria include the Isle of Man, Jersey and Guernsey. However, before making a selection, the owner must also consider the various Special Purposes Vehicles available within each of these jurisdictions.

Which Special Purpose Vehicle (SPV)? There are numerous types of SPV’s ranging from Private and Public Resident Companies, Exempt Companies, Limited Liability Companies, Guarantee Companies, Hybrid Companies to Partnerships, Foundations and Trusts. With the existence of such a vast array of ownership vehicles, it is critical for owners and their representatives to understand their individual merits together with any limitations they may have.
Further consideration also needs to be given to the actual use of the aircraft, the choice of aircraft registry, where the aircraft will operate, the nationality of the ultimate beneficial owner and finally the type of tax or VAT structure used.
Additionally, where the ownership structure is tax/VAT driven, it is important to consider how the entity is structured in terms of management and control, tax and VAT registrations, specific share capital requirements, shareholdings and financial reporting.

What are the benefits? By spending time identifying the most suitable jurisdiction and SPV type, aircraft owners can typically benefit from some or all of the following:
Confidentiality of ownership rnAsset Protection & Reduced exposure to potential liabilities rnEasing the disposition of assets to heirs rnVAT mitigation & defermentrnZero Corporation Tax rnMeeting qualified ownership requirements of certain Aircraft RegistersrnOverall reduction in operating costs

Conclusion With a constantly shifting economic environment there is no default jurisdiction and ownership structure that can be recommended. Every aircraft owner has a different set of personal tax circumstances and business objectives and therefore the structure needs to be tailored to suit his/her individual requirements.
Ignoring this critical step in the aircraft acquisition process can not only be expensive but also hard to rectify. Owners that fully explore this issue can potentially make significant VAT and tax savings on acquisition and throughout the ownership period. What is clear is that it is vital for anyone who is looking to purchase an aircraft to seek out independent professional advice at an early stage.
By Edward Leigh, Managing Director OCRA Aerospace (Isle of Man) Limitedrn