International aircraft transactions require a high level of preparation. To improve the success of an international sale, we’ve identified 6 expert tips for buying and selling an aircraft across international boundaries. The combination of common sense, advanced planning, and a valued tax advisor can return a turbulence-free sale.
1. Have Original Documentation Ready. To satisfy each country’s specific documentation requirements, build in adequate time between when the aircraft is moved to the closing location and the closing itself. Even in the digital age, certain documents must be visible for aircraft transactions. While the Certificate of Airworthiness and Certificate of Registration must be on the aircraft anytime it is flown, some aviation registries require the originals be relinquished to that aircraft registry at closing in order to de-register the aircraft.
2. Beware the “Flip”. Carefully research the seller and their motivation for entering into an international transaction. Failure to perform due diligence could result in the purchase of an aircraft without a clear country of origin, create registration problems and serious tax consequences or you may find that your documentation is at the wrong place at the wrong time. A “flip” can be difficult to identify but occurs when a seller buying an aircraft, instantly sells it to the buyer. This type of transaction can trigger tax issues because the anticipated transfer tax exemption may no longer apply, and a jurisdiction might attempt to tax the transfer twice. Additionally, a flip may cause the seller’s registry to issue a De-Registration Notice in the name of the seller and not to the buyer, leaving them temporarily unable to register the aircraft.
3. Never Fly Solo. International aircraft transactions require a team approach to ensure a seamless transaction. A team approach that includes legal, tax and technical advisors will provide key information regarding tax implications, closing arrangements, and resources for procuring aircraft documentation. Advanced planning ahead and consultation with multiple resources prior to closing to help mitigate risks associated in completing an international transaction. A tax advisor may recommend the transaction close while the aircraft is in a location favorable for taxes. But a technical advisor or pilot may have inside information regarding the location and availability of aircraft parking, hangar space and/or facility for completing technical changes required to obtain a Certificate of Airworthiness. All factors need to be considered prior to establishing a closing date.
4. Avoid Last Minute Lending. If financing is necessary to complete an international sale, make it a priority to have the loan and all documentation finalized prior to closing. Due diligence requirements are extensive – especially for international transactions. Lenders want a lot of documents signed by the buyer/borrower and they want all of the signatures in various locations in advance. Underestimating the time it takes to secure financing may leave you with one option – paying with cash!
5. It’s Not a Sprint to the Finish. International transactions require considerably more time than domestic transactions. Approach an international aircraft negotiation and transaction like a marathon, not a sprint and create a plan that takes into consideration each country’s unique differences. Key factors to consider when entering into an international buy/sell agreement include: time zone differences, international holidays, language and cultural barriers; customs issues, export controls, international treaties, multiple tax advisors, transportation regulatory schemes, etc.
6. See Taxes Differently. Taxation rules governing international aircraft purchases are complex and demand the attention of a trusted tax advisor to navigate the tax implications and other associated fees. Because aircraft are mobile, the act of landing in another country can subject the aircraft to a form of Value Added Tax (VAT), customs fees and duties, and several additional charges. Because VAT is a foreign concept to many in the U.S., the scope and extent to which VAT may apply to an international transaction is often misunderstood. Partner with an experienced tax attorney to avoid unexpected taxation issue.
For additional legal advice regarding international aircraft transactions, contact Kent Jackson or Michelle Wade, Jackson & Wade, LLC, 913-338-1700.