Amended Irish VAT rules: the potential impact on aviation Section 110 companies

21 April 2023 - A number of industries and sectors are continuing to process the recent Irish VAT amendment that came into force on 1 March 2023.

This change has been met with a generally smooth adoption, which many have labelled the ‘plant and machinery’ VAT amendment and may have an impact on Ireland’s aviation sector, depending on whether or not those companies within the segment are designated as qualifying ones under Section 110 of the Tax Consolidation Act (TCA) 1997.

Specifically speaking, the change amends paragraph 6(2)(e) of Schedule 1 of the Value-Added Tax Consolidation Act 2010. This paragraph provided for a VAT exemption in respect of the management of an undertaking that is a qualifying company for the purposes of Section 110 of the TCA 1997.

The recent amendment removes the VAT exemption for the management of certain Section 110 companies, specifically those holding ‘qualifying assets’ in the form of plant and machinery, which would include aviation assets (e.g. aircraft and engines).

What might the impact be?

As a result, the management fees for a Section 110 company that holds plant and machinery assets may now be subject to VAT.

This change should not cause undue concern for the aviation sector as typically Section 110 companies that only hold aircraft assets are engaged in VAT taxable services and can therefore deduct any VAT incurred on items such as management fees.

It is still understood that the VAT recovery may be restricted where a Section 110 company holds a mix of both aviation and financial assets. The Section 110 company will then have both taxable and exempt turnover, and this would lead to a pro-rated recovery. The ability to fully reclaim VAT will remain available, however, in the case the Section 110 company holds financial assets that exclusively generate income from non-EU sources.

Corporate Administrators and Management companies

Management companies that are currently providing VAT exempt management services to Section 110 companies need to review their supplies and determine whether the exemption is still applicable. It is important to clarify that the VAT exemption for the management of Section 110 companies holding other forms of qualifying assets, including financial assets and commodities, is not impacted by this amendment.

If you are looking for assistance with your Special Purpose Company management needs, or have any queries relating to this topic, please contact: Conor Blake CBlake@citco.com or Liam McFadden LMcFadden@citco.com.