Registration of U.S. Aircraft by Non-U.S. Citizens
Pursuant to 49 USC § 44101, an aircraft cannot be operated unless it is registered. Regardless of how one intends to operate an aircraft, there are stringent limitations on foreign ownership of U.S. registered aircraft. For those of us who assist foreign clients in the acquisition of U.S. registered aircraft, statutory and regulatory compliance is an in-depth process.
49 USC § 44102 states that an aircraft may be registered only when it is owned by a citizen of the United States, an individual citizen of a foreign country lawfully admitted for permanent residence in the United States (“Resident Alien") or a corporation not a citizen of the United States when the corporation is organized and doing business under the laws of the United States or a State, and the aircraft is based and primarily used in the United States.
FAR 47.2 defines “U.S. Citizen" as:
(1) An individual who is a citizen of the United States or one of its possessions;
(2) A partnership of which each member is such an individual; and
(3) A corporation or association created or organized under the laws of the United States or of any State, Territory, or possession of the United States, of which the president and two-thirds or more of the board of directors and other managing officers thereof are such individuals and in which at least 75 percent of the voting interest is owned or controlled by persons who are citizens of the United States or of one of its possessions.
If your client is a non-citizen corporation, it may qualify for US registration under FAR 47.9 provided it is qualified to do business in one or more states and the aircraft will be based and primarily used in the United States. The definitions in FAR 47.2 regarding “U.S. Citizen" refers to both “corporation" and “association" that are properly created or organized under the laws of the U.S. or any state, meaning the regulation applies to business entities other than corporations. A limited liability company is treated as an “Unincorporated association", as defined in the Act and the Regulations, which must pass a citizenship test similar to corporations, but modified depending on the requirements of the state in which it is registered. For the purposes of registration, an aircraft is based and primarily used in the United States if the flight hours accumulated within the United States amount to at least 60 percent of the total flight hours of the aircraft (qualifying flights must originate and end within the United States).
If your client is a partnership, all partners must be U.S. citizens. However, if one, several or all of the members are not U.S. citizens, the client is faced with the decision to restructure itself to comply with the non-citizen corporation provisions above or transferring the non-citizen partner’s interest to a trustee as described below.
If your client is not a US citizen or a qualifying non-citizen corporation, the most common means of meeting the threshold requirements for U.S. registration is through a trust. FAR 47.7 does not prevent foreign beneficiaries from having a majority, if not all, of the beneficial interest in such a trust. Keep in mind however, that the trust will be the registered owner of the aircraft.
Under FAR 47.7, the trustees must be U.S. citizens or resident aliens. Further, the applicant must submit all applicable trust documents, an affidavit of the beneficiary’s citizenship, and if any of the beneficiaries are foreign, an affidavit that the foreign beneficiaries would not have more than 25 percent of the aggregate power to influence or limit the exercise of the trustee's authority.
While the type of trust utilized depends on the needs of the client, this typically entails either a U.S. citizen owner trustee (FAR Part 47, §47.7 - Owner Trust Agreements) or a corporate trust (FAR Part 47, §47.8 - Voting Trust) holding title to the aircraft. My firm does this fairly often and to start off, we use a Trust Agreement setting out the parties’ rights in and to the aircraft and their respective duties. It specifies the respective roles and responsibilities of the parties–i.e. the trustor (“Owner Participant") and the trustee (“Owner Trustee")– and clearly states that the Owner Participant has no legal title to the aircraft. In the event the Owner Participant wishes to sell or otherwise dispose of the aircraft, we include a means for the Owner Participant to direct the Owner Trustee to either distribute the aircraft or sell the beneficial interest in the trust.
Since the FAR’s require that the trust agreement be filed with the FAA, we provide the FAA with advance copies to obtain FAA approval of the applicable trust documents prior to initiating the trust and prior to closing and delivery of the aircraft. Moreover, we explicitly preface our trust agreements with:
Trustor desires to create a trust and contribute the aircraft thereto in order to ensure the eligibility of the aircraft for the United States registration with the Federal Aviation Administration. It is the express intention and objective of Trustor that the provisions of this Trust Agreement comply with all requirements of U.S. law and the Federal Aviation Regulations, including but not limited to such laws and regulations pertaining to the registration of aircraft and that the provisions of this Trust Agreement be construed to conform to this intention.
In concert with this mechanism for ownership, we simultaneously prepare an operating lease between the Owner Participant and the Owner Trustee allowing for the Owner Participant to possess and utilize the aircraft as if it were his/her/its own. Of course deciding the terms of the lease requires communication with the client to understand its wants and needs. Of particular importance are issues concerning insurance and indemnification, tax liability, maintenance responsibility and subleases and assignments.
This may seem like a lot of trouble to go through to purchase a 1966 Piper Cherokee, but we are just following the rules. For more information, please contact me at [email protected].