Indirect Tax Update - Services for servicing the immediate needs of aircrafts

Indirect Tax Update Issue 160

On 13 January 2020 the Cyprus Tax Authorities released VAT Circular 239 which determines the VAT treatment of services provided at Larnaca and Paphos airports for the facilitation of passengers.



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It should be further mentioned that Circular 239 replaced Tax circular 236 which was previously released on 10 July 2019.Paragraph 5 of Circular 239 clarifies that services provided at the airport by the airport managing company and which concern the facilitation of passengers are considered to be supplied for the facilitation of the aircraft and are therefore subject to the zero VAT rate (0% VAT) provided that they are included in a legal contract between  the airport managing company and the aircraft company and/or the aircraft’s managing company

From the above clarifications one concludes that, if the services are provided at a separate charge to the passenger by the airline itself or the aircraft management company, they will be subject to the standard VAT rate (19% VAT).

As a result of the new Circular 239, the companies managing the Larnaca and Paphos Airports no longer need to distinguish the services they provide either directly to airlines or through airline management companies, between those relating to passenger services and those relating to aircraft services since all these services are now considered to be for the facilitation of the aircraft and therefore share the same VAT treatment.

Emphasis is placed on the fact that, in order to fall under the zero VAT rate, in addition to the aforementioned conditions, the services must be in connection to aircrafts used by airlines operating mainly on international transport at a reward. On the contrary, if the services relate to aircraft used for private flights, the zero VAT rate is not applicable.

It is also noted that the zero VAT rate is applicable in cases where the recipient of the services is established in the Republic of Cyprus. According to the basic rule for the place of supply of services and regardless of the applicable VAT rate, the place of supply of the services may be either in the Republic or in another Member State or in a Third Country (outside the EU) depending on the country of establishment of the airline or its operator receiving the services. If established in another Member State there is no need to include the transaction on the VIES system, if the same service is subject to the zero VAT rate in the other Member State.

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