Who can reclaim VAT in Aviation?

Most businesses in the aerospace industry know a thing or two about turbulence. However, it shouldn't be most prevalent within your VAT recovery processes. Regardless, VAT reclaim in aviation is known for its complexity, so much so that many businesses find it challenging to maximize their VAT potential without getting caught in the web of complex and difficult-to-manage multi-national, cross-border tax strategies.

This article takes it back to basics and looks at who can rightfully recover VAT in aviation in the first place. Spoiler alert: you may be part of the scope and eligible to recover hidden VAT on business expenses you weren't aware of. 

Let's prepare for take off. 

Can your business reclaim VAT?

Let's cut to the chase. The question here isn't really whether you can reclaim VAT but rather which expenses might be recoverable and what VAT reclaim would look like for your business. Most businesses have processes for administering VAT and maximizing their local VAT refund processes. 

However, as a company starts to scale, managing multiple VAT registrations becomes trickier. In addition, foreign reclaim opportunities are frequently overlooked due to the complex cross-border VAT procedures.

For many smaller aviation businesses, such as private charters, maximizing their VAT refund yield is an overwhelming and resource-intensive process, especially considering that most of the reclaim yield lies in foreign operations. In addition, commercial carriers and aviation companies may be VAT-registered worldwide, but common local VAT reclaim opportunities and deadlines need to be corrected. 

To summarize, yes - you might be able to reclaim VAT; it's just a matter of identifying which specific eligible expenses, processes, and requirements apply to your particular business and which country you're claiming from. 

But that's a topic for another blog (this one). 

Who can recover VAT in Aviation?

Businesses in the aviation sector with the most significant VAT potential include the following: 

• Commercial Airlines

Clients that own an aircraft that is used for business travel. This includes both domestic and foreign reclaim opportunities on eligible expenses. Some common high-cost reclaim opportunities include the VAT incurred on fuel, MRO, ground handling services, and input VAT. 

• Air Charter Companies

These companies do not own aircraft but arrange helicopter, private jet, commercial airline, and cargo aircraft charters. Air charter is the business of renting an entire aircraft, as opposed to individual aircraft seats. While commercial airlines specialize in selling transportation by seat, air charter companies focus on private itineraries for individual, customized needs. Companies that provide private or charter flights are also often eligible to reclaim VAT incurred on fuel, ground handling costs, and other qualified expenses. It's widespread for private aviation to have foreign VAT exposure and incur VAT on fuel (even when exempt), so reclaiming where possible is imperative. 

• Aviation Management Companies: 

These businesses manage privately owned jets and helicopters, on behalf of the owners. Over and above the general aircraft maintenance and accounting services they provide, they manage the chartering of these aircraft to third parties.

• Aircraft leasing companies

VAT is often charged for managing aircraft fleets and additional costs like MRO or insurance. This can lead to domestic and foreign VAT exposure for businesses that offer aircraft leasing or rental services.

• Maintenance and Repair Organizations (MROs): 

There's no hiding from VAT, which fortunately also means the scope of eligible expenses is significant. Many MRO companies incur VAT on business expenses such as VAT charged on equipment, tools, consumables, and other required inputs needed for MRO activities. 

• Ground-handling service providers

Just because ground handling costs are often VAT recoverable, it doesn't exclude the service providers from significant reclaim opportunities themselves. Businesses providing ground handling services such as baggage handling, aircraft cleaning, and other services may be eligible to reclaim the VAT portion on their VAT expenses. 

• Aviation training institutions

The VAT recovery opportunity includes most academic or educational institutions offering aviation training or related courses. VAT can be recovered on eligible expenses such as instructional materials, equipment, etc. 

Now, we're getting to the best part - recovering the VAT owed and turning potential savings into actual revenue in your bank account. Are you curious about how to calculate your business's exact VAT refund potential? 

Allow our VAT potential calculator to do the trick. Alternatively, if you'd like to dive deeper into VAT recovery for Aviation businesses, head over to our in-depth guide here. Claiming VAT in aviation