The way mktimes wants to do it at least in Germany it is not really an issue. Big advantage that he wants to rent out the plane to other pilots, too.
The challenges are typically in situations where the “aircraft renting company” that is set up only has one customer and that customer “incidentally” is also the owner of the company. In these cases the tax authority very carefully check if this is really a business or just a tax avoidance vehicle.
If there is, however, also business with other customers and the business is profitable, there typically is no such issue – obviously assuming that the owner charges the same prices to himself as renter as he does to other customers.
mktime wrote:
My goal of creating the company is to buy the plane without VAT, save VAT on maintenance costs, and rent the plane ( with VAT) to myself and others pilots.
I would very carefully check the calculation with a tax advisor! Such a company is obviously a device to not pay VAT on the airplane so that when it is sold again it can also be sold to another company w/o VAT – if the airplane is bought by an individual VAT has to be paid and “gone forever” – can’t be claimed back when the next buyer is a company or it is sold outside the EU.
What it isn’t good for is to “save VAT on maintenance”. Net-Net it is rather the opposite: One ends up paying more VAT on running cost! As the business needs to be profitable, the rent out revenues will be higher than the maintenance cost – and on the rent out revenues one has to pay VAT.
You can do it in France, it’s OK as long as you find “other clients” to fly the aircraft than just one person being shareholder, director, client and accountant…also keep records of everything and make sure the tax affaires for your existing business are in good shape and seek advice from your existing accountant & tax advisor
Running a business in France can entail many additional expenses, such as professional taxes, training taxes etc.
If there is, however, also business with other customers and the business is profitable, there typically is no such issue – obviously assuming that the owner charges the same prices to himself as renter as he does to other customers.
As much discussed previously, there are multiple attacks on that system, too. One is that the company will never make a profit, by the time you have applied capital allowances (each modern country will have its own equivalent term for that).
mktime wrote:
Planning to buy a single engine for personal travel and also for renting it.
How much do you plan to spend? My personal impression seems that the plane must be worth half a million or up to make the renting company thing really worth it. Many of the associated admin costs are fixed and from this point up at resale you will also find a real “no VAT” market.
@mktime If you are planning to have the company in another country than the the real country of operation/rental, I recommend you seek advice from a competent tax advisor.
Placing an aircraft in to a company registered in another country than the one in which it is to be leased out likely creates a VAT liability in the country where it is being leased out. EU VAT Directive Article 56 says that “The place of short-term hiring of a means of transport shall be the place where the means of transport is actually put at the disposal of the customer.”
Peter wrote:
As much discussed previously, there are multiple attacks on that system, too. One is that the company will never make a profit, by the time you have applied capital allowances (each modern country will have its own equivalent term for that).
In Germany this would not be an “attack on that system”, but a pretty clear case (and known and common practice for ages). Of course the company can make profit after depreciation. That is what a business is for – it is a trivial function of the price per hour it charges its customers.
Therefore to run it as a business the German tax authorities would simply demand that it makes profit after the first 1-2 years. If it doesn’t, it will declare it as not being a business but as “Liebhaberei” and therefore will tax will apply like for a private individual – in many cases even retrospectively.
There are many ways to avoid this (even in Germany it is not a crime to be a bad businessman and therefore make losses multiple years) and all are well know, e.g.: Multiple owners of the company with nobody owning a majority stake.
A customer mix that ensures that the majority of the revenues come from customers that are not the owners and are not affiliated with the owners.
A credible business plan shared with the tax authorities that demonstrates the road to profit
But yes: If you call it “attack on that system” that tax authorities call the bluff on these constructs that were never meant as business but set up purely for tax avoidance reasons, then this system is under attack.
Malibuflyer wrote:
Therefore to run it as a business the German tax authorities would simply demand that it makes profit after the first 1-2 years. If it doesn’t, it will declare it as not being a business but as “Liebhaberei” and therefore will tax will apply like for a private individual – in many cases even retrospectively.
@Malibuflyer, by profit you mean the actual dividend paid to the owner(s)?
Or would it be enough the professional valuation of assets goes up?
For example, the company could be using the revenue to upgrade the aircraft.
It would be shown as cost, so no profit for the shareholder(s).
Would it be OK?
It cannot be that simple otherwise nobody would start a business in Germany.
Lots of one man businesses make a loss for many years. The taxman doesn’t care provided it does not look like a hobby business. He really hates making use of the loss against another business which does make a profit 
Aircraft upgrades are a capital expense BTW, not a loss. Capital expenditure is a good way to cripple a business because the cash is gone, you pay corporation tax on the elevated profits, but you usually get little useful stuff to show for it
Peter wrote:
Aircraft upgrades are a capital expense BTW, not a loss
I am sure every owner will disagree: “it’s gone, forever”
I think one of the reason is “moving average” and “pull to the mean” even well equipped aircraft outlier where avionics exceed the airframe & engine will see it’s price getting pulled toward it’s many peers with average avionics !
