With over 50% of the worlds leased Commercial aircraft managed from Ireland and a significant number of the top global aircraft leasing companies based here, we are seeing at some stage new and existing lessors along with private equity investors evaluating setting up a leasing platform or funding structure in Ireland for their new aircraft transactions.
To summarise the main features of using Ireland, it normally comes down to a few factors such as:
- Expertise and professional advisers who can assist and set up various structures depending on your requirements.
- Ireland's Tax Treaty network is still a crucial factor but not only due to its extensive range with a vast array of countries but also its quality of specific treaty clauses within them especially for the treatment of withholding taxes on lease rentals
- A low headline corporation tax rate and favorable tax accelerated capital allowances allows leasing companies setting up a trading platform to avail of the low Irish corporation tax rate of 12.5% and accelerated capital allowances compared to other countries.
- Flexibility and adaptability to regulation changes, as Ireland is a small jurisdiction it can adapt quickly to changes while with a proactive and supportive government behind the industry solutions can be constructed by the industry participants. This allows a quick resolution for any roadblocks in doing business or around the implementation of new legislation to be implemented.
- With the various structures available to the sector including S110 of the taxes consolidation Act 1997 which allows for securitisation, capital markets and asset financing structures to be used by the aviation sector once all the tests and conditions are met.
It is estimated that there are over 1800 aircraft SPV’s in Ireland as at 31.12.18 (1400 as at 31.12.14), a quick review shows 250 of these are set up as designated activity companies ("DAC's") with the remainder as Limited Liability Companies ("LTD's"). With a global fleet of around circa 25,000 commercial jet aircraft in service at the moment with expectations that this will increase at a rate of 4% p.a which will mean that there will be close to 50,000 aircraft in service in 20 years time of which 50% will be leased and require various structural requirements.
So the first thing that needs to be established is the best location for the international lessor operations or structures which will require a tax analysis review, efficient shareholding structuring and various operational considerations with most advisers providing their initial analyst to 2 or 3 locations, Ireland being one.
If Ireland is chosen as the jurisdiction of choice then the next step is to establish which type of structure best fits and who is going to manage it for you, Amstrow as an authorised service provider can assist with the full set up and management throughout the life of the structure. The various structural considerations to be considered will include some of the following:
- An Orphan SPV owned by a charitable trust ("Orphan SPV")
- A Lease in lease out structure ("LILO")
- An on-balance sheet trading subsidiary entity with partial outsourced managed solution ("Trading Entity")
- An orphan or subsidiary financing vehicle ("Finance Lease Structure")
- Owner Trustee Structure ("OTS")
- Whether to use a Designated Activity Company ("DAC") or Limited Liability Company ("LTD")
Once the structure is established your corporate service provider or legal adviser will be required to draft the constitution and liaise with the Companies registration office. Our group entity Amstrow Company Formations can assist with this either through our online platform or directly by contacting one of our team at AMSTROW who can normally have a company setup within 48 hours. Some things to consider in advance of incorporation is, a company name, board composition, shareholders,operational matters, cash management and if required under the relevant tax advice what substance will be required to achieve a trading status. In addition to the management and control requirements which will dictate the tax residence of the entity, revenue guidance over the last few years is that you must have an Irish lease manager to assist with the lease obligations to obtaining an Irish trading status. This is another area in addition to Aviation Corporate Services that Amstrow's Aviation Services can assist with .
Once the company is set up your corporate service provider can assist with bank account opening, Tax, Facta, CRS, UBO, EMIR, FVC and TUE registrations. In order for the whole process to be completed you should allow a time frame of 4-6 weeks for everything to be in place prior to the transaction closing.
The day to day operations of the company/SPV should be carried out by industry experienced professionals from board level right the way down to managing your tax, accounting and regulatory requirements ensuring the company meets all its obligations and deadlines during the course of transaction and especially when unforeseen events happen such as event of defaults.
The ongoing company reporting obligations are ever increasing with new regulations, reports and tax monitoring increasing each year. With the new BEPS regime there is a greater emphasis on structures having more substance, either in-house or outsourced,and the reason for locating to jurisdictions needs to be documented and analysed. Ireland has agreed to introduce a “Principal Purpose Test” into our tax treaties Multilateral Instrument whereby if it is deemed that the main reason of establishment was purely treaty benefits then the benefits may be denied, while the introduction of DAC 6 disclosure requirements has put greater emphasis of advisers and intermediaries to report certain details to the relevant authorities.
The introduction of IFRS 16 will require a detailed knowledge of the new accounting standards to avoid any unforeseen profit or gains arising due to accounting changes, FX or operational matters.
Along with new and more onerous legislation changes such as GDPR, AML and Data security means that there are greater operational risks which will require more stringent management oversight.
These are challenges which with the right team behind you can allow you to concentrate on your core front office obligations.
"BEPS, IFRS & AML are some of the areas that will require close analysis in 2019"