Harnessing Hong Kong’s strengths: New aircraft leasing tax regime

The tax incentives in Hong Kong for aircraft leasing activities have come into effect and are applicable to profits of qualifying aircraft leasing companies and qualifying aircraft leasing managers from 1 April 2017. The profits shall be taxed at 8.25%, i.e. 50% of the standard Hong Kong profits tax rate of 16.5%. This represents a pivotal step towards establishing Hong Kong as a competitive aircraft leasing hub.

To compensate for the denial of depreciation allowance for aircraft under a lease, assessable profits of the qualifying aircraft lessor from its qualifying aircraft leasing activities will be calculated at 20% x (the relevant lease income minus related deductible expenses).

The eligibility for the aircraft leasing tax incentives are subject to certain requirements and restrictions including the following:

  • The aircraft lessor or aircraft leasing manager is required to have its central management and control exercised in Hong Kong, and its qualifying leasing activities or leasing management activities are to be performed in Hong Kong;
  • The aircraft lessor has not carried out any activity other than qualifying aircraft leasing activities (aircraft leasing managers can opt for alternative requirements) in Hong Kong;
  • The tax incentives are not applicable if the aircraft leasing company leases the aircraft to the lessee under hire purchase, funding lease or wet lease.

Details of the assessment practice of the Hong Kong Inland Revenue Department for the tax incentives are set out in Departmental Interpretation and Practice Notes No. 54 issued in October 2017.

This is indeed a long-awaited welcome development removing the tax hindrances that have hitherto deterred overseas aircraft lessors from setting up a base in Hong Kong. With its unique role as China’s “super-connector” and the gateway to the fastest growing aviation market, Hong Kong is poised to become a highly strategically located aviation finance hub at the heart of Asia.

As a fast-growing professional advisory firm based in Hong Kong with established presence in Shenzhen, Guangzhou and Shanghai in mainland China, CW CPA acts as a connector for international businesses seeking to expand into Hong Kong and China. Our highly experienced tax specialists can help you optimise your company’s tax exposure and effectively leverage tax incentive schemes such as the above-mentioned.

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