Why the small fry attracts the big fly

Why register your business jet offshore when you could opt for a ticket from your own country’s authority?

Other than saving money, there are several good reasons why owners may choose a different jurisdiction.

Several owners in the Middle East have selected reputable states such as Aruba, the Bahamas, Bermuda, the Cayman Islands, Malta and even the Isle of Man as their registry of choice.

Offshore registration permits owners to form a corporation in the registering country that can own and operate the aircraft without any requirement that it be based and primarily used in the issuing country. Such flexibility means that in recent years Bermuda, the Cayman Islands, the Bahamas, and Aruba have become recognised business addresses for corporate aircraft for many multi-national companies; and the number of types such as Gulfstream IVs and Boeing Business Jets registered under their auspices is increasing.

According to James Cooling, a US-based aviation lawyer, the aviation authorities in these offshore countries are knowledgeable, friendly, and fluent in English. Bermuda, the Bahamas, and the Cayman Islands all operate under the British Civil Aviation Authority regulations. Although Aruba became constitutionally autonomous from the Netherlands in 1986, the Aruba Aviation Act is in the Dutch language, with an English translation available upon request.

Depending on the citizenship of the aircraft owner, and where the aircraft will be based, there can be tax advantages to offshore registration. Value Added Tax of 20.5% in Europe on a Boeing Business Jet is a lot of money in anyone’s books. However, registering in countries such as the Cayman Islands is beneficial in that its jurisdiction imposes no income, profit, sales or usage taxes.

Cooling pointed out: “There are also times when a low profile flag is needed for political reasons. Security considerations are very important and will only become more important in the future.”

There are other benefits to offshore registration for certain types of aircraft. For example, the Learjet 35 has not been certified to Joint Aviation Authority standards, so it cannot be registered in an EEC country. However, it could be registered offshore, since it is certified by the FAA and is eligible for an FAA Certificate of Airworthiness (CoA).

Any aircraft registered on an offshore ticket must meet either US FAA or UK CAA standards, and maintenance must be performed by an FAA-approved Part 145 or JAA-approved Part 145 maintenance organisation. This helps with resale values.

Noise pollution can be another factor lending itself to offshore registration. Some countries do not allow Stage II aircraft and Stage I over 75,000MW on their aircraft registry. The EU has pledged to ban future registration of certain large commercial hushkitted and re-engined aircraft. However, Aruba, for example, does not have the same noise regulations as the US or European communities.

According to Cooling, offshore corporations that own offshore-registered aircraft may also reduce their liability exposure in the event of an incident. He stressed, however: “Aircraft owners should consult with their own liability counsel regarding their individual circumstances.”

There are certain guidelines to adhere to when registering offshore. An application to register an aircraft in Bermuda has to come from a Bermudan resident or corporation registered on the island. Many aircraft on the Bermuda registry are owned or leased by companies formed solely for the purpose of owning and operating an aircraft under a Bermudan ticket. These are generally referred to as “exempted companies” because they are exempted from local ownership requirements.

All aircraft must meet CoA standards. Generally the director of civil aviation will accept British CAA, US FAA, or joint airworthiness requirements (JAR) standards. Costs to register are based on the aircraft’s weight. A Bermuda-registered aircraft may be purchased and based outside of Bermuda. Registration marks are prefixed VP-B and followed by the two letters assigned to the specific aircraft.

The registration process for the Cayman Islands is very similar. The Civil Aviation Authority of the Cayman Islands (CAACI) accepts aircraft only operated in the ‘private category’, which is very similar to the FAR Part 91. Applications take two to three weeks to process and the CAA performs an airworthiness inspection at the place where the aircraft is located, which does not have to take place in the Cayman Islands.

Director-general Richard Smith said: “The CAACI procedures are not unduly complicated and the fees involved are competitive. However, it is the CAACI’s assistance and professionalism in abiding by and ensuring adherence to the standards set which make the real difference. This has afforded us the excellent reputation we enjoy internationally today.”

Cayman-registered aircraft must be maintained by an approved FAA or JAA Part 145 maintenance facility. Registration marks for the aircraft are prefixed VP-C and followed by the two letters assigned to the specific aircraft. Operators interested in conducting commercial operations should contact CAACI for information concerning application for an AOC.

The registration requirements in the Bahamas are coordinated between the Civil Aviation Authority and the Department of Civil Aviation. Registration is very similar to Bermuda and the Cayman Islands, but is much cheaper. The registration marks for the aircraft are prefixed C6 and followed by the three letters assigned to the specific aircraft.

Aruba is an overseas territory of the European Union. Although it is situated in the south-western Caribbean, it is officially part of the Netherlands. The Department of Civil Aviation in Aruba has a similar registration policy to its offshore counterparts, and has proved such a popular flag that the Aruban government has opened an office in Miami, Florida. Registration marks for the aircraft are prefixed P4 and followed by the three letters assigned to the specific aircraft.

The Isle of Man Aircraft Registry is now five years old and home to 500 aircraft, including 259 business jets from all the world’s manufacturers, plus airliner variants from Airbus and Boeing. Business aviation makes up the lion’s share of aircraft on the IoM ticket. Some 17% come from countries outside Europe, or other offshore registrations.

The country has an international reputation as a tax-efficient but responsible and co-operative jurisdiction and appears on the OECD ‘white list’ of countries complying with the global standard for tax cooperation and exchange of information.

Like the other authorities mentioned, it offers high regulatory standards; high service levels and quality international reputation; and a neutral nationality registration prefix. Financially, the IoM is a secure mortgage register, with no insurance premium tax. It also offers a professional infrastructure with experience in aviation finance, and is a Standard & Poor’s and Moody’s AAA-rated jurisdiction.

Malta, meanwhile, is not an offshore jurisdiction – rather it is an EU country, yet still offers tax efficiencies for those choosing to register their aircraft there. It does not impose a withholding tax on lease payments if the lessor is not a tax resident of Malta, and also boasts no insurance premium tax.

Smith concluded: “Offshore registries have entered into various treaties and implemented legislation to meet with internationally accepted anti-money laundering and due diligence standards. These advances have been balanced against preserving the privacy of clients wherever possible. For these reasons they provide the assurance and peace of mind sought after when selecting the jurisdiction that is right for registration of an aircraft.”