Aircraft ownership structure

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vsierra
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Aircraft ownership structure

Post by vsierra »

Hello all,

Having had a passion for aviation for a long time, I recently got to the point where I can afford this expensive hobby, and am now figuring out how to best structure aircraft ownership. I'm leaning towards buying a DA62 (beautiful bird!) and will use the plane primarily for leisure, flying my family around Europe (I'm based near Vienna) with no intention to rent it out or do charter flights.

1. I haven't talked to any dealers yet, but am I correct that quoted prices (e.g. $1.4M for a DA62) are exclusive of VAT?
2. Do you own the airplane as a private person, or do you own it through a company like a personal holding or dedicated entity? What's the motivation for doing so (tax, legal, etc.)?
3. Is there any advise you can share on structuring ownership in a tax advantage way? (E.g. would you strongly recommend to rent out the plane after all, find some business use for it, etc.)
4. Do you have any resources/info on deprecation of Diamond aircraft, and specifically the DA62?

I'm curious to learn how to best go about this. All input is very much appreciated and my apologies if I'm asking "dumb" questions here. I'm at the very start of my journey to learn about this, and was unable to find much information on this topic, nor do I know where to start other than on this very forum that I've been reading for years but have never posted in :)

Thanks!
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ememic99
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Re: Aircraft ownership structure

Post by ememic99 »

I can reply to two questions.

2. I own DA42 through company. The initial reason was that I operated small flying school and I planned to use it within it, besides of using it for business travel. During the time the situation changed and now I rent it out (to myself) because it's the only way for tax authorities to recognize aircraft expenses as tax deductible. In Croatia the company income made from the aircraft in this way has to be at least 7% of the book value of the aircraft in order for the expenses (spare parts, maintenance, fuel, oil, etc.) to be recognized and deducted from the profit. In that case VAT also can be recognized.
3. Check with Austrian tax advisor what would be total tax exposure in different scenarios - it's hard to tell anything more specific without knowing the legislation. The most simple case is to buy it as a private person, pay all the taxes and avoid any question. However, this is rarely optimal. Regarding (real) renting it out, I would avoid it because any income you'll made will hardly cover wear & tear induced by different pilots flying it, not to mention some mishandling or damage caused by inexperienced pilots with type. Finding business use for it sounds better although if you want to operate anything A to A or A to B, it requires AOC.
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dgger
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Re: Aircraft ownership structure

Post by dgger »

I second the advise to speak with a tax consultant.

For years I had a DA42 in a similar construct in Germany. The key to have it recognized by the tax authorities was chartering the aircraft out to multiple customers, which I understand you don’t want to do.

There is no way around talking to a knowledgable advisor, I think. Ideally, you would pick someone who has dealt with aircraft before.
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Re: Aircraft ownership structure

Post by NDCDA62 »

I would suggest you contact WeFly GmbH in Germany who are very familiar with such requirements.
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Re: Aircraft ownership structure

Post by DiamondRob »

I just wanted to say a very big congratulations on getting this far, finding your way to diamond and selecting the DA62. Exciting times ahead!
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Re: Aircraft ownership structure

Post by robert63 »

If you use the aircraft only by yourself then just buy it like a car. You buy it including VAT, and you pay for insurance, hangar, fuel, maintenance etc.
If you want to share it with other people and at least one of them uses it for business trips then it is better to use a GmbH (Limited Company). The GmbH comes with additional cost for accounting and some taxes. The GmbH buys the plane and pays for all expenses. When you fly the aircraft the GmbH will send an invoice to you, including VAT.
So for private use there is no way to escape from the VAT. I cannot see how to get any tax advantage in either way. The only thing is that the aircraft is written off after 21 years ( the same for all aircraft). But the lifetime is much longer, and this means that you build a large hidden asset. And in the past you could sell an aircraft after 25 or 50 years of use still for the original purchase price, and this might still be true in the future. This way it can be rather beneficial for you.
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sedatedokc
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Re: Aircraft ownership structure

Post by sedatedokc »

I just bought a DA42 in Europe and had basically the same questions. I ended up just paying VAT. It is good you are doing your research now.

1. The quoted prices are without VAT. So the 1.4m DA62 is really 1.7m after VAT in Europe for private use.

4. The DA62 order book is filled over 2 years out. Demand is high. Depreciation seems to be quite low on Diamonds. YMMV.

2/3: This is my question as well. I just got it as a private person, it is the easiest, but more expensive route. What I have understood is that cheap aircraft (1980s Cessa) will generally be private owned / Pay vat. But a Pilatus for example, they will always be owned through a company ( company registered in Cyprus, Malta), and usage will be invoiced. No one is paying $1m+ VAT on a new turboprop, from what I understand. A new DA62... it is worth finding some aviation law people that would know how to sort this out.

It is good you are doing this research now, because you may need the purchase agreement / bill of sale / etc in the company name if you decide to go that route. How the rules work for each country about owning through a company and invoicing yourself for usage, I do not know. I would recommend asking on https://www.euroga.org A user there name Snoopy is very helpful if you are lucky enough to be able to talk to him.
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Re: Aircraft ownership structure

Post by vsierra »

First of all, many thanks to all for the great replies and advice, really appreciate it!

I'll definitely talk with my tax advisors as well, I just wanted to gather some initial input so I don't enter the discussion being completely clueless about the topic :)

@robert63, something that stood out to me was this sentence:
The only thing is that the aircraft is written off after 21 years [..] And in the past you could sell an aircraft after 25 or 50 years of use still for the original purchase price, and this might still be true in the future.
How does that work? Who would buy the aircraft for the original purchase price after 25-50 years?

@sedatedock and @robert63, regarding your comments on VAT: wouldn't that become a huge issue upon selling? If a company buys a $1M plane, and sells it 2 years later to another company for $900K, it would all be without VAT (i.e. the VAT would be deductible). But as private owner, you'd have paid $1.2M (VAT rate depending on your country), and then sell it for $1.05M (example), which works for private buyers, but is unattractive for company buyers. Or am I missing something here?
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Re: Aircraft ownership structure

Post by ememic99 »

vsierra wrote: Sat Nov 19, 2022 7:36 pm
But as private owner, you'd have paid $1.2M (VAT rate depending on your country), and then sell it for $1.05M (example), which works for private buyers, but is unattractive for company buyers. Or am I missing something here?
You’re right, once you pay VAT, you can’t undo that and your plane becomes too expensive for company buyers because they can’t deduct VAT anymore.
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Re: Aircraft ownership structure

Post by robert63 »

vsierra wrote: Sat Nov 19, 2022 7:36 pm
How does that work? Who would buy the aircraft for the original purchase price after 25-50 years?
In 2004 a DA42 was approx. € 450.000,- including VAT. This was with Thielert of course. If you purchased it new, changed it to Austro and kept it tidy you could sell it now certainly for € 450.000,-. As far as I can see this is true for most general aviation aircraft. I think a new C182 was USD 20.000,- about 60 years ago. And now these sell for USD 100.000,-.
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