Hong Kong: New tax rules for aircraft leasing

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The Government introduced in March this year tax concessions for the aircraft leasing industry to foster the proposed development of Hong Kong as an aircraft leasing centre.  On March 10 2017, the Hong Kong government gazetted the Inland Revenue (Amendment) (No.2) Bill 2017, which formally introduces a concessionary tax regime for certain aircraft leasing activities. The tax concessions are offered to two classes of persons, qualifying aircraft lessors and qualifying aircraft leasing managers.

The main features of the proposed regime are as follows;

  • An 8.25% tax rate applies to all qualifying profits of qualifying aircraft lessors (this is half of the prevailing profits tax rate for corporations); and
  • The assessable amount of leasing income of a qualifying aircraft lessor is deemed to be 20% of the gross leasing income less deductible expenditure (excluding tax depreciation).
  • An 8.25% tax rate also applies to all qualifying profits of qualifying aircraft leasing managers.

To be eligible for the tax concessions, the aircraft lessor must be a “qualifying aircraft lessor” that satisfies some conditions including lessor must be a corporation with its central management and control in Hong Kong. The lessor must be the owner of the aircraft being leased and must not carry out in Hong Kong any activities other than qualifying aircraft leasing activities.

To qualify as a “qualifying aircraft leasing manager”, the manager must satisfy some conditions including at least 75% of its profits arise from, and 75% of its assets are deployed for, the aircraft leasing management business. The manager must be a corporation with its central management and control in Hong Kong. The aircraft leasing management activities must not be carried out from a permanent establishment outside Hong Kong. The manager must have elected in writing that it wishes to opt into the tax concessionary regime.

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