Ireland As the Domicile of Choice for Aircraft Leasing

The birth of the aircraft leasing industry in Ireland can be traced back to the establishment of Guinness Peat Aviation in Ireland in 1975. Since then, Ireland developed into the global centre for aviation finance and aircraft leasing. Ireland is a global leader in terms of market share with most of the world’s largest aircraft leasing companies located here and the majority of leased aircrafts managed by Irish based lessors.

The aircraft leasing market has grown substantially over the past few decades. Airlines are now leasing over 50% of their portfolios. This rate increased during the pandemic with many airlines opting for sale and leaseback transactions to raise liquidity.

Following on from the pandemic, aircraft leasing has recovered quickly. In this article, we explore why Ireland has emerged as the domicile of choice for aircraft leasing around the world.

Ireland at a Glance

Ireland is the country of choice for aircraft lessors, with 14 of the top 15 aircraft lessors headquartered in Ireland. Additionally, 50% of the world’s fleet of leased aircrafts are managed through Irish companies. According to Atlantic Star Analytics, as of 31 December 2023, there are 5,275 active aircraft leasing vehicles domiciled in Ireland.

In a statement released earlier this year, Aircraft Leasing Ireland (ALI) stated that “the aviation industry is responsible for 8,543 full-time equivalent jobs, an economic contribution of $975 million annually, and spending with Irish suppliers of $327 million each year.”

Irish Tax Residence

Ireland’s dominant position in the aviation leasing industry is firmly based on their highly advantageous tax regime, which has been strategically targeted towards supporting this sector.

In order to avail of Ireland’s advantageous tax and regulatory regime, the aircraft leasing company must be domiciled in Ireland. In general, a company will be deemed Irish tax resident if it is Irish incorporated, or the central management and control is exercised in Ireland.

It is also important to note that as a member of the EU and OECD Ireland is not considered to be an “offshore” jurisdiction, adding to its attractiveness for the domiciliation of aircraft leasing.

Corporation Tax

Ireland’s attractive 12.5% corporation tax rate will apply to the income of active leasing companies. Active leasing companies include those companies carrying on an operational business activity where substantiated value is added in Ireland. Companies which only own an aircraft or lease which produces income without active operations would be subject to the 25% passive rate of corporation tax on this income. However, when subsidiary SPVs are part of an active leasing group they may also be deemed to be trading entities.

Section 110 Regime

Ireland’s Section 110 (“S110”) regime is particularly attractive to aircraft lessees and lessors. Introduced in the early 1990s, an S110 company is designed to act as a tax-neutral regime to improve Ireland’s offering as a location for financial services. Under the S110 regime, taxable profits of qualifying companies are calculated as a trading company, with the cost of financing, management fees, arrangement fees, administration fees and other applicable costs are treated as tax deductible.

VAT

In Ireland, whether there will be any VAT payable on the sale of an aircraft is determined by its physical location at the point of the sale. If the asset is physically located in Ireland at the point of sale, the place of supply for Irish VAT purposes will be applicable to Irish VAT rates. As a result, the seller will be liable for any Irish VAT chargeable on the supply, at 23%. However, if the asset will be used outside the EU or by a transport undertaking operating for reward chiefly on international routes, Irish VAT will apply at 0%. This means no VAT is payable on the lease, but VAT incurred on costs by the lessor should be recoverable.

Double Tax Treaties

Ireland has an extensive network of 76 double taxation agreements with 74 of those being currently in effect as of Jan 2023. Under these treaties, withholding tax on lease rentals, interests, royalties and other payments made out to Irish resident companies are either reduced or eliminated. Rental income on aircraft leases is not subject to withholding tax in Ireland.

Transfer Pricing

Irish transfer pricing rules for aviation leasing came into effect from 1 January 2011. These regulations mean “arm’s length” principle must be imposed on transactions between companies under common beneficial ownership in order to curb profit shifting. Companies with a turnover of €50 million or less, total assets of €43 million or less and fewer than 250 employees will be exempt from transfer pricing rules. Thus, the applicability of these regulations to aircraft leasing companies will vary on a case-by-case basis.

Cape Town Convention

The Cape Town Convention came into force in Ireland on 1 March 2006. The primary aim of the convention is to resolve the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location. Ireland was the first EU member state to ratify the convention and was the one of the first signatories in the world – highlighting its commitment to keep Ireland at the leading edge of the industry.

On May 10, 2017, the Minister for Irish Transport, Tourism and Sport announced that the Irish Government had signed an order pursuant to the State Airports (Shannon Group) Act 2014 implementing the provisions of “Alternative A” of the Aircraft Protocol to the Cape Town Convention on International Interests in Mobile Equipment into Irish law. Alternative A provides both the creditor and the airline (or its insolvency administrator) with a clear timetable during which they can negotiate the return or retention of the aircraft.

The implementation of Alternative A reinforces Ireland’s leading position as the centre of aviation globally. Alternative A further facilitates the offering of bonds and asset backed securities. Such bonds and debt securities should obtain higher ratings from credit agencies which, in turn, should bring interest cost savings for airlines and aircraft leasing.

The implementation of Alternative A enhances Irelands attractiveness as a jurisdiction for aircraft leasing globally. Additionally, Ireland is a founding signatory of the convention, and the headquarters of the International Registry of Mobile Assets is based in Dublin.

How Cafico International Can Help

Cafico International is an experienced independent trust and corporate services provider with specialist industry knowledge of aircraft leasing administration and accounting. Cafico International is authorised by the Aviation Working Group (AWG) to act as trustee service provider for the Global Aircraft Trading System, a digital trading platform that has been designed to modernise aircraft equipment trading and financing.

Our clients include investment banks, private equity firms, alternative lenders, airlines and aircraft lessors. We manage aircraft leasing SPVs around the world, working with a wide range of aircraft lessors, including both new entrants and established players.

We provide a fully comprehensive suite of accounting, administration, lease and cash management services to operating lessors, manufacturers, airlines, banks and financial institutions. Our expert team have extensive experience in the provision of corporate services to Special Purpose Vehicles (“SPVs”) used for the structuring of lease-in, lease-out aviation transactions, securitisations and other forms of asset finance.

Our services include:

• SPV Administration

• Managing agent services including monthly investor reports

• GATS Trustee and owner trustee services

• Beneficial Ownership registers

• Lease accounting and financial reporting services

• IFRS, US GAAP and local GAAP

• iXBRL financial statements

• Corporate governance and secretarial Services

• SPV formation

• Resident Irish directors

• Provision of registered office

• Supporting aircraft purchase and sales transactions

• Aircraft registration

• Cash management services and ABS structures

• Aircraft securitisation services

Tailored ancillary services:

• Payroll administration

• Assistance with pensions and benefits establishment

• Project management

• Anti-money laundering regulations compliance

• Periodic debt reporting

• Central Bank statistical reporting

• GDPR Services

If you would like to learn more about the aviation industry in Ireland or find out more about how Cafico International can help you, please reach out to Niamh Manning.