Taxing questions: Aircraft registration and tax in Switzerland
Rolf Schilling, partner at Blum & Grob Attorneys at Law explains the tax implications of putting your aircraft on the Swiss Aircraft Registry.
AN AIRCRAFT IS eligible for registration in the Swiss Aircraft Registry (HB-registration) maintained by the Federal Office of Civil Aviation (FOCA), the Swiss civil aviation authority, if it is, among other things, (a) owned by a Swiss citizen or resident or a Swiss company, or (b) subject to a special permit by the FOCA, if it is foreign owned but supplied to a Swiss holder of an air operator certificate (AOC) for a period of at least six months.
An aircraft listed in the Swiss Aircraft Registry may also be entered in the Swiss Aircraft Book and therewith become a registered good potentially subject to registered lien(s), such as a mortgage.
Hence, the registration requires a strong Swiss connection and the aircraft, which is ultimately supplied to and used by Swiss residents and brought into the Swiss customs territory, being the territory of the Swiss Federation and the Principality of Liechtenstein, is subject to Swiss customs clearance and payment of Swiss import value added tax (import VAT).
With effect of 1st January 2024, Switzerland abolished the industrial tariffs. Foreign goods such as aircraft, helicopters, spare parts etc. can be imported free of customs duties; however, the import VAT remains.
The registration of an aircraft in the Swiss Aircraft Registry, therefore, usually requires its full importation and leads to mandatory Swiss tax compliance for the registered owner or the AOC holder who is registered as its manager or operator. The Swiss tax rules to be complied with are outlined below.
Swiss tax rules
The aircraft with the required Swiss connection can be registered in the Swiss Aircraft Registry if the Swiss customs authorities have cleared it for the free circulation in Switzerland. In this process, the importer of record is determined as the person or entity that finally receives the aircraft and may, therefore, dispose of it as owner or use it as lessee. This person or entity may ordinarily direct the whereabouts of the aircraft. In practice, said importer is either the resident owner or the Swiss AOC holder who receives the Swiss customs forms #15.15 for the airframe and every engine. These customs forms must be submitted to the FOCA to accomplish the registration. In Switzerland, this customs procedure is combined with the assessment of import VAT, and the importer of record is also primarily liable to settle the import VAT.
Usually, it is the owner who imports the aircraft and pays the import VAT incurred upon import. Import VAT is levied at a tax rate of currently 8.1%, and basically the tax base is the current market value of the aircraft. However, in a dry-lease arrangement, the aggregate value of the lease rentals payable during the entire term of the agreement can be considered as the relevant tax base for computing the import VAT.
Ordinarily, the import VAT must be paid in advance to the Swiss customs authorities to enable them to clear the aircraft for import and to issue the import forms #15.15. There is, however, one important exception to this rule: if the importer of record is the holder of a Swiss centralised customs clearance account providing for sufficient coverage, the import VAT will be debited on that account and become due 60 days after the day of the aircraft import; Swiss and foreign persons and entities are eligible as holders of such an account administered by the Swiss customs authorities.
Pertaining to a Swiss imported aircraft, the value of the costs for aircraft maintenance conducted by providers or outfitters outside the Swiss customs territory will also become subject to import VAT at the then applicable Swiss VAT rate. The obligation to clear customs is triggered at any inbound flight to Switzerland; thus, a customs declaration at the airport of arrival must be submitted. This would be a time-consuming exercise potentially leading to inconvenient delays in the operation of the aircraft. To avoid this, the importer of record may apply, in advance, to the Swiss customs authorities and enter into an agreement that allows the one-time submission of the customs declaration listing all non-Swiss maintenance works that may be subject to import VAT. The due date for that one-time submission under such arrangement is end of March following the calendar year in which the maintenance events were carried out. For the avoidance of doubts, such maintenance work includes repair and the rectification of marks of ordinary wear and tear.
As an alternative to the import by the owner, the Swiss or foreign AOC holder may import the business aircraft into Switzerland; in practice, this option is only elected if that operator is exempt from paying import VAT. To qualify for such exemption, the aircraft must, among other conditions, be permanently made available for charter to that Swiss AOC holder under an operation and charter arrangement or a lease agreement between the owner and the operator. Hence, at least 50% of all passenger flights must be conducted for third-party charter customers of that operator; therefore, less than 50% of the flight time may be for the benefit of customers related to the owner. If all requirements are met, the aircraft may be imported free of import VAT, irrespective of whether the owner and/or the ultimate (beneficial) owner of the aircraft reside in Switzerland. This relief of import VAT applies to the import of the aircraft itself as well as to the import relating to non-Swiss maintenance events. This important instrument releases the parties to the operating or lease agreement from the cash-intensive and sometimes cumbersome exercise of registering as VAT taxpayer and claiming refund of the import VAT.
Non-compliance with the customs regime outlined above may lead to unpleasant consequences: The importer of record, usually the owner or the AOC holder, will be primarily liable for the import VAT, and any parties involved in the inbound flight to Switzerland, including but not limited to, the manager and the pilot(s), may become jointly liable for the import VAT incurred with the deemed imports as well as the interest incurred by the late payment of the import VAT. In addition, an administrative penal investigation will be initiated which may result in fines of up to 300% of the unpaid import VAT.
Under certain circumstances, the aircraft owner may claim full or partial refund of the import VAT and other Swiss VAT charges incurred with the operation of the aircraft. In particular, the Swiss VAT incurred on the contractually agreed fees and the reimbursement of costs (including costs for crew, fuel, insurance, etc., as invoiced by the Swiss or non-Swiss operator of the aircraft to the owner) must be considered.
In its 2022 decision, the Swiss Supreme Court ruled that refund of paid Swiss VAT may only be granted to the extent the business use of the aircraft is evidenced. Thus the owner would need to register with the Federal Tax Administration, Division VAT and obtain a VAT ID; then, the VAT registered owner would have to evidence with documents the flight time connected to a sound and genuine business activity, such as a) third-party charter flights conducted by the AOC holder for its customer base; and b) business related flights of the owner and owner’s affiliated companies. No refund of VAT is possible for any private use of the aircraft and the burden of proof of the business usage of the aircraft is on the shoulders of the party filing for refund of Swiss VAT. However, if the aircraft is used at least for 80% of its flight time for genuine business purposes, full refund of VAT paid will be possible.
This refund procedure relating to business aircraft can be a cumbersome exercise, and the import free of import VAT by the Swiss AOC holder, therefore, is an important instrument to minimise Swiss VAT costs. This option should therefore be considered at an early stage in any aircraft acquisition project.
Is it possible to obtain a Swiss registration without accounting for import VAT? The Swiss Customs laws provide that the Swiss customs authorities may authorise the use of an aircraft owned by a Swiss or foreign entity but used by persons not residing in the Swiss customs territory without such import. Thus allowing the temporary use of the non-imported aircraft on Swiss cross-border transports, provided that all of the conditions outlined herein below are met:
a. The Swiss AOC holder operates the aircraft in a commercial operation; whereas this operator is the holder of the customs permission and therefore, responsible that all conditions are met;
b. The non-Swiss resident person performs no more than 12 arrivals in Switzerland, followed by the departure of the aircraft; the period of time where to account for the 12 arrivals is a 12-month roll over period; hence, the calendar year is not relevant;
c. The aircraft is re-exported at the end of each transport operation within three days;
d. The arrival and the departure of the aircraft is timely notified to the Swiss customs authorities in writing by a designated Swiss customs agent appointed by the Swiss AOC holder.
If these requirements are met, the Swiss customs authorities will issue the required permission without accounting for import VAT, and the Swiss AOC holder may register the aircraft in the Swiss Aircraft Registry; no Swiss VAT declaration will be required, and because the aircraft is not cleared for the free circulation, there will be no import VAT relating to non-Swiss maintenance either.
Are there other Swiss taxes to be considered? The Swiss registration of the aircraft in the Swiss Aircraft Registry or its entry in the Swiss Aircraft Record does not constitute a tax relevant connection of the owner with Switzerland: The owner’s income/profit and net wealth/net capital is subject to Swiss taxation only if the owner is a tax resident of Switzerland, thus subject to the ordinary rules outlined in the Swiss tax acts. A non-resident owner, lessor and/or lender won’t therefore, become subject to Swiss taxation. The Swiss manager, lessee or borrower will have no obligation whatsoever to declare or withhold any Swiss taxes on payments, if any, on the income, profit and capital of the non-Swiss resident parties involved in a financing or similar transaction.
Finally, we should point out, this article was prepared with the greatest possible care. However, it is for information purposes only and cannot replace individual advice. Any liability for the correctness or topicality of the information is excluded.
About the author
Rolf Schilling, attorney at Law is a Swiss certified tax expert and partner at Blum & Grob Attorneys at Law. He specialises in business aviation matters for which he dedicates more than two thirds of his work time to tasks and transactions relating to value added tax and custom duties, advisory and litigation. He also advises on real estate and property transactions, national and international tax planning, succession and estate planning.
About the author
Rolf Schilling, attorney at Law is a Swiss certified tax expert and partner at Blum & Grob Attorneys at Law. He specialises in business aviation matters for which he dedicates more than two thirds of his work time to tasks and transactions relating to value added tax and custom duties, advisory and litigation. He also advises on real estate and property transactions, national and international tax planning, succession and estate planning.
If these requirements are met, the Swiss customs authorities will issue the required permission without accounting for import VAT, and the Swiss AOC holder may register the aircraft in the Swiss Aircraft Registry; no Swiss VAT declaration will be required, and because the aircraft is not cleared for the free circulation, there will be no import VAT relating to non-Swiss maintenance either.
Are there other Swiss taxes to be considered? The Swiss registration of the aircraft in the Swiss Aircraft Registry or its entry in the Swiss Aircraft Record does not constitute a tax relevant connection of the owner with Switzerland: The owner’s income/profit and net wealth/net capital is subject to Swiss taxation only if the owner is a tax resident of Switzerland, thus subject to the ordinary rules outlined in the Swiss tax acts. A non-resident owner, lessor and/or lender won’t therefore, become subject to Swiss taxation. The Swiss manager, lessee or borrower will have no obligation whatsoever to declare or withhold any Swiss taxes on payments, if any, on the income, profit and capital of the non-Swiss resident parties involved in a financing or similar transaction.
Finally, we should point out, this article was prepared with the greatest possible care. However, it is for information purposes only and cannot replace individual advice. Any liability for the correctness or topicality of the information is excluded.
