GERMANY Law and Practice Contributed by: Konrad Schott, Jan Brinkmann and Johannes Vogel, Freshfields
2.1.3 Restrictions Concerning Payments in US Dollars Except for reporting requirements relating to inbound or outbound payments in excess of EUR12,500 (or the equivalent in any foreign currency) from or to a foreign lessor pursuant to the German Foreign Trade Ordinance ( Außenwirtschaftsverordnung ), there are no restrictions imposed on domestic lessees making rent payments to foreign lessors in US dollars. 2.1.4 Exchange Controls In the EU, exchange controls between member states and between member states and third coun - tries are prohibited. However, for statistical purposes, all inbound or outbound cross-border payments in excess of EUR12,500 (or the equivalent in any foreign currency) have to be reported by German residents ( Inländer ) to the German Federal Bank ( Deutsche Bun- desbank ) within a period of seven calendar days of such inbound or outbound payment pursuant to the German Foreign Trade Ordinance ( Außenwirtschafts- verordnung ). German law will give effect to foreign exchange regulations pursuant to Article VIII 2 (b) of the Articles of Agreement of the International Mon - etary Fund. 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease The mere physical execution of a lease agreement in Germany or the transportation of an executed lease agreement into Germany does not result in any taxa - tion. However, income resulting from a lease is subject to taxation in the case of a German tax resident lessor or, otherwise, if the aircraft is registered in the German aircraft register ( Luftfahrzeugrolle ) – subject to double taxation treaties – irrespective of an original or copy of a lease agreement being brought into Germany either physically or electronically. Leasing of an aircraft des - ignated to be used by airlines predominantly provid - ing international commercial air transport is usually exempt from VAT. 2.1.6 Licensing/Qualification of Lessors Generally, operating leasing by a German lessor does not require any regulatory approval or licence from German authorities. The provision of financing leas - ing ( Finanzierungsleasing ) within the meaning of the German Banking Act ( Kreditwesengesetz or KWG)
within or into Germany can be subject to regulation under the KWG. Such financing leasing of an aircraft under a financing lease will require a permit under the KWG subject to certain exemptions. The features of a German financing leasing ( Finanzierungsleasing ) differ from those of finance leases pursuant to International Financial Reporting Standards (IFRS) and may deviate from comparable tax rules. For other roles in aircraft financing (eg, the lender), further regulatory approvals may be required (eg, a banking licence). 2.2 Lease Terms 2.2.1 Mandatory Terms for Leases Governed by English or New York Law We are not aware of any aspects of German law requir - ing the inclusion of specific provisions in a foreign law-governed lease agreement not typically already included, except for certain restrictions to sanctions provisions predicated on the anti-boycott rules in the German Foreign Trade Ordinance ( Außenwirtschafts- verordnung ) and Regulation (EC) No 2271/96 (the EU Blocking Regulation), which should be included if a German and/or European resident is a party to the lease agreement. Also, lease agreements between a European party and a non-European party would, from the European party’s perspective, need to con - form with the requirements of Article 12g of Regulation (EU) 833/2014 on so-called No Russia clauses and Article 8g of Regulation (EU) 765/2006 on so-called No Belarus clauses. 2.2.2 Tax and Withholding Gross-Up Provisions Gross-up provisions with regard to any withholding tax levied on payments by a party to a lease agree - ment are not prohibited by German (tax) law. Aircraft lease agreements usually allocate such risks to the lessee and contain a gross-up provision to that effect. 2.2.3 Parts Installed or Replaced After a Lease’s Execution Aircraft or engine leases typically contain provisions relating to the replacement of parts (during mainte - nance or otherwise), the alteration and modification of, and additions to, the aircraft, as well as to the cor - responding title transfers. Under German conflict of law rules, the choice of law is excluded for in rem rights. As regards ownership and its transfer, German law provides for mandatory provisions.
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