INTERNATIONAL AIRCRAFT OWNERSHIP
By Dr. Connie L. Wood
Original Text of Article published by “World Aircraft Sales” Magazine – August 2000
Many current and prospective non-resident aircraft owners often dream about the possibility of one-day owning a United States or Cayman Island registered aircraft. However, since these countries require the owner of an aircraft to be a citizen of that country, usually the dream remains just that: a wistful desire deemed impractical and, in any case, unattainable. But if you think maybe one day you would like to make the dream come true, read on.
As daunting as it might seem, with proper knowledge and professional guidance, the process of acquiring a United States or Cayman Island registered aircraft is quite achievable. In order to do so the aircraft purchaser, hereinafter called a “Beneficiary”, engages a Trustee services company, hereinafter called a “Trustee”, to place the chosen aircraft in either a U.S. Registered Business Trust or Cayman Islands “bare” Trust. The Trustee then obtains permission from the Federal Aviation Administration in the case of the United States (the FAA) or the Civil Aviation Authority in the case of the Cayman Islands (the CAA) to hold title to the aircraft, but for the exclusive use of the beneficiary (the aircraft purchaser), who has the legal right to use or modify the aircraft, and also to subdivide or transfer their beneficial rights to a third party. Such transfers are quite often free of any sales, transfer or value added taxes.
DID YOU KNOW that it is possible to hold title to a FAA registered aircraft with an “Offshore Trust” and have no national or state tax reporting liability?
During the term of the Trust, the FAA or CAA considers the Trustee the legal owner of the aircraft. But, the foreign Beneficiary has full legal title to the Trust and has “the absolute right of use and enjoyment” of the Trust property (the aircraft) as if he or she owned the aircraft outright “in fee”. This “Beneficial” ownership arrangement is not the same as a lease, which expires at the end of its term and may actually violate FAA aircraft registration laws depending upon the purchase terms of the lease.
This “absolute right of use” by the Beneficiary is interpreted under the tax codes of many countries as “Economic Ownership”, and entitles the Beneficiary the right to treat the aircraft for tax purposes (assuming the Trust is properly constructed) the same as if the aircraft was owned outright and nationally registered. This right is not possible with a U.S. corporate structure without violating the FAA aircraft registration laws. If desired, the option also exists in many countries to lease the aircraft from the Trust, take the lease payments as tax deductions in the host country, and to depreciate the aircraft in the United States.
DID YOU KNOW that U.S. owned aircraft can be fully depreciated in only five (5) years and if used in international air transport service, profits on lease revenue may be free of tax?
The foreign Beneficiary may at any time within the trust period use the aircraft for business or private use, improve the aircraft, rent or lease out the aircraft, or sell his or her beneficial rights to the Trust, totally or partially, provided the Trustee is notified and the transfer is made in a legal manner in accordance with the terms of the Trust. Although not mandatory, Trust title transfers should be accomplished before a “Notary Public” and publicly recorded.
DID YOU KNOW that it is possible to have U.S. ownership of European registered aircraft? Think of the tax advantages.
There is a persistent myth in the aviation community that a non-US Citizen can obtain legal FAA registration by setting up a Delaware or Nevada Corporation and registering the aircraft to it. This is only legal if the aircraft is physically based and utilized in the United States, the aircraft flies 60 percent of its flight hours each year in United States airspace, and the aircraft operator reports its flight hour activity to the FAA every six (6) months! Aircraft so registered and not complying with the foregoing rules are operating illegally.
DID YOU KNOW operating with a faulty FAA registration is a federal crime, punishable by up to 3 years in prison and by up to a $ 15,000 fine, and can result in confiscation of the aircraft?
Another myth is that a foreign corporation with an U.S. subsidiary can legally register an aircraft with the FAA and operate worldwide. Again, only true if the foregoing rules are followed. And, the use of a FAA corporate owned aircraft among members of a controlled group may be subject to U.S. federal excise tax even thought the aircraft is foreign operated.
DID YOU KNOW that if you operate your FAA registered aircraft in a separate company, it might be an illegal FAR Part 135 operation, with exposure to FAA enforcement action, and no insurance coverage?
A further myth is that a foreign citizen can request an U.S. Citizen nominee (e.g., a friend or relative) to represent them to the FAA as the owner of the aircraft for registration purposes. Since U.S. law permits only the holder of full legal title to the aircraft to represent himself or herself to the FAA as the owner, and legal title in the U.S. is a function of contract law, vesting of title in the nominee has to meet all the requirements of a legal contract. As such, these actions, almost without exception are fraudulent and illegal, and subject the nominee to severe penalties if discovered.
DID YOU KNOW that the issue of a FAA registration certificate does not guarantee legal title or valid registration?
OK, so you now know you can do it. But use common sense in selecting your Trustee. You must be aware there are individuals and companies offering registration products and services which do NOT meet the complex laws governing legal aircraft title and registration requirements, resulting in improper filings and illegal FAA & CAA registration. Only a properly insured and experienced Trustee service provider who specializes in this field should be engaged. If the prospective service provider cannot produce evidence of ample “Errors & Omissions” insurance, then run don’t walk to the nearest exit.
DID YOU KNOW that many of the advantages of international FAA & CAA aircraft registration procedures are also advantageous to domestic U.S. aircraft owners too?
Dr. C. L. Wood, MBA, BSBA, LTC (US Army Ret), is President of Aircraft Guaranty Corporation, a Trustee service company with over 12 years of international registration experience and aircraft operating in 36 different countries of the world.