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Ireland: The Location of Choice for the Air Cargo Operations Sector

Ireland continues to build on its reputation as a centre of excellence for aircraft leasing and financing and as a jurisdiction to establish air cargo operations. Its position has been further enhanced in recent years. There are a number of reasons why Ireland attracts investment in this area which include its favourable tax regime, a wide double tax treaty network, the large number of bilateral air service agreements to which Ireland is a party and professional expertise. These factors combined with a government which is committed to growing and supporting the industry mean that Ireland has become the obvious location from which air cargo operators can base their operations

Taxation environment

  • 12.5% tax rate

The profits of an air cargo business carried on in Ireland are generally subject to 12.5% Irish corporation tax. The Irish government has repeated its commitment to maintaining the 12.5% corporation tax rate for active trading companies. This commitment has been welcomed by the aviation community in Ireland.

  • 12.5% tax depreciation

An air cargo operator may claim annual tax depreciation on capital assets in Ireland on a straight line basis over 8 years (ie, 12.5% per year). For example, an air cargo operator may claim 12.5% tax depreciation each year in respect of capital expenditure incurred on aircraft it owns or finances pursuant to finance leases.

  • Double tax treaty network

Ireland has now signed 72 double tax treaties (70 of which are now in force). Ireland’s most recently signed double tax treaties include treaties with Ukraine, Thailand, Botswana, Uzbekistan, Ukraine, Kuwait, Qatar, Bahrain, Saudi Arabia, Armenia, Egypt and Ethiopia. The Irish tax authorities are very active in increasing the number of treaties to which Ireland is a party, particularly with emerging market and Middle-East jurisdictions. Ireland’s tax treaties generally provide that the profits arising to Irish resident cargo operators from the operation of aircraft in international traffic are taxable only in Ireland. Ireland’s tax treaties also provide protection against the risk of establishing foreign permanent establishments for tax purposes by reason solely of locating aircraft in relevant tax treaty jurisdictions.

  • No withholding tax on lease rentals or interest payments

An air cargo operator may choose to lease the aircraft it operates, pursuant to operating leases or finance leases. Ireland does not impose withholding tax on lease rental payments payable by Irish operators in respect of aircraft leases, regardless of whether the leases are classified as operating leases or finance leases. An air cargo operator may also choose to raise debt-financing to acquire the aircraft it operates. Ireland has wide domestic exemptions from interest withholding tax, which mean that Irish air cargo operators can generally raise financing from all major banks that engage in aircraft financing and from the capital markets without withholding tax applying.

  • Stamp Duty & VAT

There is no stamp duty or transfer taxes on the transfer of aircraft or aircraft parts in Ireland.

Air Service Agreements
Irish licensed carriers are free to operate services on any route within the European Community. In addition, the EU and the United States have agreed, pursuant to an open skies air transport agreement, to allow any European Union or US licensed carrier to fly between any point in the European Union and the United States. Furthermore, Ireland has approximately 29 bilateral air service agreements with third countries. The Irish Department of Transport is very active in increasing the number of bilateral agreements to which Ireland is a party with its primary objective being “to facilitate and encourage as wide a range as possible of reliable, safe and competitive air services to link the (Irish) State with key business and tourism markets”.

Cape Town Convention and Aircraft Protocol
Ireland was one of the first Contracting States to the Cape Town Convention and Aircraft Protocol, which is another reason why lenders, airlines and lessors favour Ireland as a jurisdiction for aircraft financing and leasing. The Cape Town Convention and Aircraft Protocol afford parties involved in financing and leasing transactions greater confidence and predictability, principally through the establishment of a uniform set of rules guiding the constitution, protection, prioritisation, and enforcement of certain rights in aircraft and aircraft engines.

Irish Aviation Authority
Ireland has a highly regarded aviation authority. Many aircraft which are operated in countries such as Russia and Italy are registered with the Irish Aviation Authority. Airlines, air cargo operators, lessors and lenders choose Ireland as the state of registration to remove deregistration risk and protect the residual value of the aircraft by having the aircraft registered with an EASA registry. This trend has continued in recent years and has been further bolstered by the fact that registration of an aircraft in a Contracting State to the Cape Town Convention and Aircraft Protocol satisfies one of the connecting factors to create an international interest. Further protection can be afforded through registration of an IDERA with the Irish Aviation Authority, which eliminates deregistration risk as only the ‘authorised party’ named on the IDERA can control the deregistration of the aircraft.

Preliminary regulatory requirements to commence air cargo operations in Ireland

There are three initial regulatory steps in establishing a commercial air cargo operation in Ireland using aircraft registered with the Irish Aviation Authority:

  • Step 1: Incorporate an Irish company, having its principal place of business in Ireland. At least two-thirds of the board of directors of this company must be citizens of EU Member States.
  • Step 2: Obtain a valid Air Operator Certificate (“AOC”) from the Irish Aviation Authority, which takes approximately six months to be grated.
  • Step 3: Obtain a valid Air Carrier Operating Licence (“ACOL”) from the Commission for Aviation Regulation of Ireland.

This article first appeared on Aircargopedia.com