Aviation Finance & Leasing Guide 2023: Ireland

• Law Firm: Walkers
• Subject Matter: Finance and Banking, Transport, Insolvency/Bankruptcy/Re-structuring, Charges, Mortgages, Indemnities, Financial Services, Insolvency/Bankruptcy, Aviation, Leasing
• Author: Mr Matt Hedigan, Killian McSharry, Padhraic Mulpeter, Eimear Burbridge and Caitlín Friel
• Published date: 21 August 2023

1. Aircraft and Engine Purchase and Sale

1.1 Sales Agreements

1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement

VAT

Whether there will be any VAT payable on the sale of an aircraft is determined by its physical location at the point of sale. If the aircraft is physically located in Ireland at the time, the place of supply for Irish VAT purposes will be Ireland. As a result, the seller will be liable for any Irish VAT chargeable on the supply, at 23%. However, if the aircraft will be used outside the EU or by a transport undertaking operating for reward chiefly on international routes, Irish VAT will apply at 0%. The seller will be obliged to be registered for VAT in Ireland, regardless of whether the 0% or 23% rate applies.

Stamp Duty

Irish stamp duty legislation provides an exemption in respect of the lease, transfer and sale of an aircraft, regardless of where the aircraft is located at the time of sale.

Customs Duties

No customs duty will be charged on the transfer of title of the aircraft where the aircraft is on the ground in Ireland and in free circulation in the EU.

Customs duties will only apply on the importation of an aircraft into Ireland from outside the EU or on the release of an aircraft in Ireland in circumstances where the aircraft is coming off a duty-suspended procedure such as transit or inward processing.

1.1.2 Enforceability Against Domestic Parties

As a matter of Irish law, translation, certification, notarisation or legalisation is not required to enforce a sale agreement against an Irish party.

1.2 Transfer of Ownership

1.2.1 Transferring Title

Transfer of title is legally effected upon delivery of the bill of sale, which will usually include engines installed on the airframe and installed parts on its face, but does not set out the entire commercial agreement between the parties, usually set out in the aircraft sale and purchase agreement.

If an aircraft registered in Ireland has a new owner, a change of ownership form should be filled in and lodged with the Irish Aviation Authority (IAA), and a new Registration Certificate will be issued to the new owner upon filing the form. The aircraft may not be flown until the IAA issues the new Registration Certificate in the new entity′s name and the certificate is on board the aircraft.

The sale of the ownership interest in an entity that owns an aircraft or engine is effectively recognised as the sale of that aircraft or engine itself, to the extent that the entity to whom the ownership interest is being transferred holds title to the aircraft or engine.

1.2.2 Sales Governed by English or New York Law

There is no formal legal requirement under Irish law that a bill of sale needs to be governed by Irish law. See 2.6.5 Domestic Courts' Approach to Foreign Laws and Judgments.

Generally, the transaction documents used in aircraft sale transactions (including bills of sale) are well-established forms and do not present a difficulty from an Irish legal perspective.

1.2.3 Enforceability Against Domestic Parties

As a matter of Irish law, translation, certification, notarisation or legalisation is not required for the enforceability of a bill of sale against an Irish party.

1.2.4 Registration, Filing and/or Consent From Government Entities

A bill of sale cannot be registered with the IAA or any Irish government entity. No government applications or consents are prerequisites to the execution and delivery of a bill of sale in relation to an aircraft or engine registered in Ireland. See also 1.2.2 Sales Governed by English or New York Law.

1.2.5 Taxes/Duties Payable Upon Execution of a Bill of Sale

VAT

VAT payable on the sale of an aircraft will depend on the physical location of the aircraft at the point of sale. If the aircraft is physically located in Ireland at the time of sale, the place of supply for Irish VAT purposes will be Ireland. As a result, the seller will be liable for any Irish VAT chargeable on the supply, at 23%. However, if the aircraft will be used outside the EU or by a transport undertaking operating for reward chiefly on international routes, Irish VAT will apply at 0%. The seller will be obliged to be registered for VAT in Ireland, regardless of whether the 0% or 23% rate applies.

Stamp Duty

Irish stamp duty legislation provides an exemption in respect of the transfer and sale of an aircraft, regardless of where the aircraft is located at the time of sale.

Historically, the Irish Revenue Commissioners (Irish Revenue) had extended by concession the stamp duty exemption in respect of the lease, transfer or sale of an aircraft also to apply to the sale or transfer of shares in an aircraft-owning entity (AOE). The current position regarding the transfer of shares in an AOE is that this concessionary treatment does not apply, and stamp duty on the sale of shares in an Irish AOE is payable at a rate of 1% (subject to any available reliefs). The duty applies to the market value of the shares or the consideration paid, whichever is higher. Irish stamp duty does not apply to the transfer of shares where the consideration payable or market value (whichever is higher) for such shares is EUR1,000 or less.

Customs Duties

No customs duty will be charged on the transfer of title of an aircraft where the aircraft is on the ground in Ireland and in free circulation in the EU.

Customs duties will only apply on the importation of an aircraft into Ireland from outside the EU or on the release of an aircraft in Ireland in circumstances where the aircraft is coming off a duty-suspended procedure such as transit or inward processing.

2. Aircraft and Engine Leasing

2.1 Overview

2.1.1 Non-permissible Leases

Subject to the general legal principles of contract law, there are no types of operating/wet/finance leases or leases concerning only engines or parts that are not permissible or recognised in Ireland, as far as is known.

2.1.2 Application of Foreign Laws

A lease involving either a domestic party or an asset situated in Ireland can be governed by a foreign law – see 2.6.5 Domestic Courts' Approach to Foreign Laws and Judgments.

2.1.3 Restrictions Concerning Payments in US Dollars

No material restrictions are imposed on domestic lessees making rent payments to foreign lessors in US dollars.

2.1.4 Exchange Controls

Since 1 January 1993, there have been no foreign exchange controls in Ireland. With the removal of exchange controls, the Financial Transfers Act, 1992 has given the Minister for Finance reserve powers to introduce restrictions on financial transfers between the state and other countries in the form of regulations and prohibition orders.

2.1.5 Taxes/Duties Payable for Physical Execution of a Lease

No taxes/duties are payable for executing a lease physically in Ireland or as a consequence of an original or copy of a lease being brought into Ireland, either physically or electronically.

2.1.6 Licensing/Qualification of Lessors

A lessor does not have to be licensed or otherwise qualified to do business with a domestic lessee.

2.2 Lease Terms

2.2.1 Mandatory Terms for Leases Governed by English or New York Law

English or New York law-governed lease agreements (and ancillary documents thereto) generally follow well-established forms and do not present a difficulty from an Irish legal perspective.

2.2.2 Tax and Withholding Gross-Up Provisions

Generally permissible from an Irish-law perspective, any such provisions would need to be reviewed on a case-by-case basis, the enforceability of which will depend on the governing law of the lease.

2.2.3 Parts Installed or Replaced After a Lease's Execution

The leasing of spare engines and other parts (including any such parts as may become attached to the aircraft in the future) may be made a part of the aircraft lease. Spare parts may also be the subject of a separate lease. No special formalities are required.

2.2.4 Risk of Title Annexation

This is a matter for the governing law of the lease. Under Irish law, legal and practical risks can arise when engines become attached to other aircraft in accordance with pooling agreements or if they become subject to encumbrances. Accordingly, the lease will usually provide for such eventualities and may provide for a separate recognition of rights agreement to be entered into in favour of the lessor/owner/security trustee.

2.2.5 Recognition of the Concepts of Trust/Trustee

The concept of a trust and the role of an owner trustee under a lease are recognised in Ireland.

2.3 Lease Registration

2.3.1 Notation of Owner's/Lessor's Interests on Aircraft Register

The purpose of registration is solely to establish the aircraft′s nationality, thereby determining which jurisdiction's regulations will apply to the aircraft and the person who will be responsible for the airworthiness and maintenance of the aircraft. The registration of an aircraft does not establish title to the aircraft and does not constitute actual notice or constructive notice of ownership.

2.3.2 Registration if the Owner Is Different From the Operator

An aircraft can be registered domestically in the name of the aircraft operator if the operator is not also the owner, or in the name of the owner if the owner is not also the operator.

2.3.3 Aircraft/Engine-Specific Registers

There is no specific register for leases concerning aircraft or engines. However, if the lease is registrable under the Convention on International Interests in Mobile Equipment and the related Protocol on Matters specific to Aircraft Equipment (together, the "Cape Town Convention"), it can be registered on the International Registry (IR) as an international interest.

2.3.4 Registration of Leases With the Domestic Aircraft Registry

A lease (and a lessor's interest therein) cannot be registered or filed in the domestic aircraft registry, and leases are not subject to consent from any government entity.

2.3.5 Requirements for a Lease to Be Valid and Registrable

As a matter of Irish law, translation, certification...