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Ownership of US Reg Aircraft in EUROPE

THE US TRUST AS AIRCRAFT OWNERSHIP.

Ownership of US Reg Aircraft in EUROPE

If you call yourself the “owner” of a United States of America registered aircraft which is permanently based in Europe and you are not a United States Citizen, then you, more than likely, are violating the USA law.

Under the laws of the United States, a non-US Citizen cannot own an aircraft that is being permanently operated in Europe without violating the US law. This is because an aircraft may be registered under U.S. law only when a United States citizen owns the aircraft.

A non-US Citizen (e.g. an European citizen), however, can operate a U.S. registered aircraft in Europe, under limited circumstances without violating the law.

The United States of America federal law requires aircraft operated outside of United States airspace for more than 40 percent of their flying hours during any six calendar month period, to be “legally owned” and “registered” by a “Citizen of the United States.”

The law specifies what “legal ownership” means and who is a “citizen of the United States.”

Thus, for an aircraft to be operated permanently outside the United States, ownership requirements of both the U.S. “common law” and U.S. “federal law” must be met.

Ownership and registration prerequisites are defined under federal law in the Federal Aviation Act of 1958, while the common law is derived from federal and state case law.

By law, a United States citizen may apply for aircraft registration and must certify to this in the application. The Federal Aviation Administration defines U.S. Citizen as an applicant for aircraft registration under the Federal Aviation Act as:

  1. A United States Citizen.
  2. A resident alien who is a citizen of a foreign country, but who is lawfully admitted for permanent residence in the United States. This individual must furnish a representation of permanent residence and the applicant’s alien registration number issued by the Immigration and Naturalization Service.
  3. A partnership only if each partner, whether a general or limited partner, is a citizen of the United States. Partnerships containing a partner who is not a U.S. Citizen do not qualify.
  4. A corporation organized under the laws of the United States, where the “president” is a U.S. Citizen, and “two-thirds or more” of the “board of directors” or any other “managing officers” must be U.S. Citizens. Additionally, a minimum of “75 percent of the voting interest” (read corporate stock with voting rights) must be owned or controlled by persons who are U.S. Citizens.
  5. A trust organized under the laws of the United States with one or more trustees of which must be U.S. Citizens.

The objective of the law is to ensure that ownership of U.S. registered aircraft is limited to U.S. Citizens. This is necessary for the United States to exercise legal jurisdiction over certain operations of its registered aircraft when they are operated outside of U.S. airspace.
Remember, there are “Two Tests” that must be met for an aircraft to have a legal registration:

(1) A “US Citizen owner”
and
(2) “Full legal” ownership. ??The issue of who is a “legal owner” of an aircraft may seem simple, however, the issue can be quite complex.

Legal ownership although addressed in federal aircraft registration law, is determined by U.S. civil case law  (common law), business law, and sometimes taxes law.
Since a “legal owner” may only be a U.S. Citizen, it is essential to understand who a “legal owner” is.
To avoid potential prosecution by local European authorities or the U.S. government, this point must be clearly understood by European citizens operating U.S. registered aircraft in Europe.

Many European operators of U.S. aircraft find themselves in a Catch-22. They are operating the aircraft illegally because they are the “legal owners”.
Others violate the law because of lease law and contractual arrangements they made and, in essence, they accidentally become the “legal owner” under the law.
This, in turn, triggers “illegal operation” of the aircraft.

The Federal Aviation Act provides that “registration is not evidence of ownership of aircraft in any proceeding in which ownership by a particular person is in issue”.

The FAA does not issue any certificate of ownership or endorse any information with respect to ownership on a Certificate of Aircraft Registration.” ?The plain English translation of the foregoing paragraph is:

  1. Acceptance of an application for aircraft registration and issue of a Certificate of Aircraft Registration by the FAA in no way confirms the aircraft is legally “owned” under the law.
  2. Acceptance of an application and the issue of a Certificate of Aircraft Registration provide no immunity for later prosecution for having violated the aircraft registration law.The foregoing translation of the law is going to come as a “big surprise” to some European operators of U.S. registered aircraft. They believe the issue of the aircraft registration certificate confers “legal” status on their actions or legal constructions. It does not!!!

Only one form of aircraft registration application is examined for legal determination by the FAA legal department upon submission. That is the trust.

Under U.S. law the registration of an aircraft is invalid if, at the time the application is made:

  1. The applicant is not the legal owner (probably because legal ownership was never transferred under civil and business law).
  2. Is not qualified to submit an application because the legal owner is not a U.S. Citizen.
  3. The interest of the applicant in the aircraft was created by a transaction that was not entered in good faith, but rather was made to avoid compliance with paragraph 501 of the Federal Aviation act of 1958 (potential problem for those agreements entered into by corporations, partnerships, or individual business for the sole purpose of holding title to an aircraft).

Violation of the aircraft registration law also violates the U.S. federal civil penal code. Penalties may include fines or imprisonment, revocation of the aircraft’s registration, U.S. and state government tax liens against the aircraft, and confiscation of the aircraft. Improperly registered aircraft are deemed invalid and forfeit protection under international law against confiscation and sale by foreign governments.
Lenders (an organization or person that lends money) securing aircrafts that conduct international operations often are unaware of their exposure to the risks.

So, if a U.S. aircraft must be owned by a U.S. Citizen to be operated full-time in Europe, are the people we see operating U.S. aircraft, “who are obviously not U.S. Citizens and who proclaim themselves to be the owner”, legally operating the aircraft?
The answer is that some aircraft are legal, but the sad truth is that a large number of these aircrafts are not legal.
The illegal operations are usually not intentional. They occur due to a lack of knowledge of the U.S. law or arise because the owners or operators were given incorrect information about the U.S. registration law.

Unfortunately, many European operators of U.S. registered aircraft have:

  1. Set up U.S. corporations or personal businesses and given their names to the FAA with addresses in the U.S.
  2. Arranged for a “friend” (who is a U.S. Citizen) to register the aircraft for them.
  3. Signed in “good faith”, leases which due to improper construction under the registration law transferred legal ownership to them under the “contract of conditional sale” clauses of the law.
  4. Made special agreements to purchase the aircraft at any time by completing an “updated” and “pre-signed bills of sale” provided to them by the sales personnel; thereby, making them the owner under the “buyer in possession” clauses of the law.
  5. Failed to comply with U.S. and state tax laws, which can result in termination of the legal status of the aircraft’s registered owner.

Any of these procedures can create a situation, which leaves the European “owner” or operator open to prosecution not only by the United States, but also by any country whose airspace the aircraft may transit.

Remember operating an aircraft with an invalid registration is a violation of international as well as national law.

??At this point it is important to repeat what was stated in the beginning, “under U.S. law, a non-U.S. Citizen can legally operate a U.S. registered aircraft in Europe, but they cannot own it”.

For a European citizen to permanently operate a U.S. registered aircraft in Europe a properly constructed lease or operating agreement must be executed between the European citizen and a U.S. Citizen aircraft owner.
Please recall the only choices are: Individuals, Partnerships, Corporations, and Trusts.
The U.S. laws governing personal, corporate, tax, and financial liability and responsibility are very different from those in Europe. Therefore, the type of U.S. Citizen aircraft owner selected to obtain the lease from is a selection of extreme importance.

Without proper knowledge of the U.S. law, the European aircraft operator can “unknowingly” assume large risks.

The primary risk is a financial one and related to the workings of the U.S. liability, bankruptcy, inheritance, and tax laws.
In most cases the European operator has provided the financing for the aircraft; therefore, this is an area deserving very close attention.
In general, the legal and financial risk order of U.S. Citizen aircraft owners is graded from most risky to least risky as follows:

* Highest Risk –> ———————————– <–lowest Risk *

Individual —- Partnership —- Corporation —- Trust

 

 

How you choose the legal source of your operating lease is a personal choice directly related to how much “risk” you are willing to accept under U.S. law.
Be careful.
For those European aircraft operators who need the tax benefits and who desire to have a “feeling” of aircraft ownership, there is a way.
This is through a U.S. Trust Agreement. Construction of trust agreements is complex area of the law and should only be in trusted to firms who specialize and have experience in this type of service.
Under a very specifically constructed U.S. Trust Agreement, a European citizen can, in effect, “beneficially own the aircraft”, which is being operated, and receive certain tax benefits under special conditions.
The European citizen in essence, “beneficially owns the aircraft”, because under U.S. trust law it is legal for a European citizen to be the direct beneficiary of all-monetary value which the trust owns. Similar law exists in most European countries.

The “Bottom Line” is: No matter how much you want to believe you can “own” a U.S. registered aircraft and permanently operate it in Europe – you cannot own it unless you are a U.S. Citizen or U.S. resident alien!
If you do own it and you are not one of the foregoing, you are very likely exposing yourself to prosecution or adverse administrative actions once the authorities discover this.

This tekst is originally made by:
Dr. Connie L. Wood, MBA Suma cum Laude, BSBA Magna cum Laude, Lieutenant Colonel, U.S. Army (Ret), is President of Aircraft Guaranty Title Corporation, a Trustee service company with over 12 years of international registration experience. This tekst is addapted for this site by: W.C.J.M. van Genk, aviation specialist , ATP-CFI – CRMI.


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