If your business aircraft, engines or parts are likely to be sent outside the EU for maintenance, repair or replacement by non EU based manufacturers and/or repairers then you need to read this article before you commit to any future repair programmes or general works.

Recent reports coming out of Germany suggest that the Outward Processing Relief system (OPR), something that normally almost passes unnoticed in business aviation circles, is not being utilised sufficiently to avoid additional Import VAT burdens.

OPR is a Customs relief that is intended to be used to allow businesses to:

• take advantage of cheaper labour costs outside the UK and EU;
• to utilise processes not available within the Union, or
• to allow faulty goods to be returned to a third country for repair.

The way that OPR works is that where EU manufactured or imported goods are sent outside the EU for maintenance or repair under an OPR approval they can retain their existing free circulation status – as well as effective credit for any VAT already paid – on their return to the EU. This will mean that normally Import VAT will only be due on any added works done, where applicable, providing the use of OPR has been approved before the goods left the territory. When OPR is not applied for, then on return to the EU Import VAT may be charged on the value of the returning engines and parts in full instead.

This can become a problem where the goods are sent to an MRO in another Member State for maintenance. If that MRO is obliged to send the parts directly to a non-EU manufacturer or repairer it then becomes the MRO’s responsibility to ensure that the goods are sent out under OPR if possible.

The critical issue for any aircraft owner or operator will be timing! Before agreeing a repair process in Germany, or in any other Member State, it will be essential to check with the MRO involved:

• what their process will be for any goods sent out of the EU as part of the maintenance works or programme;
• whether they expect Import VAT to be charged on the return to the EU;
• whether they can apply for the OPR system on your behalf, and
• whether the MRO will be able to reclaim any Import VAT charged.

If the MRO is not able to reclaim the Import VAT incurred you will need to confirm if you can do this yourself under the Directive 2008/9 scheme (previously known as the “8th Directive scheme”). If OPR will apply it is essential to be aware that this approval must be applied for before the goods leave the EU.

If you are in any doubt please get in touch with our tax advisors at Martyn Fiddler Aviation who will be happy to assist you.