A Hong Kong ship leasing subsidiary has secured confirmation from the Inland Revenue Department that it qualifies for concessionary tax treatment under the qualifying ship lessor regime, meeting all statutory requirements, including maintaining at least two qualified employees and annual Hong Kong operating expenditure exceeding HKD 7,800,000. The ruling applies for five assessment years from 2024-25 to 2028-29.
The Hong Kong Inland Revenue Department (IRD) published an advance ruling on 12 November 2025 on whether a Hong Kong ship leasing company qualifies for the concessionary tax regime for “qualifying ship lessors” under the Inland Revenue Ordinance.
The Applicant, a wholly-owned subsidiary of Company A, operates exclusively as a ship lessor in Hong Kong. Both entities are Hong Kong-incorporated companies sharing the same directors and business premises. The Applicant purchased a 172,521 gross tonnage vessel and leased it under a 12-year bareboat charter with a five-year extension option.
To fund the vessel acquisition, the Applicant borrowed from Company A and pays interest on this loan. Company A also provides comprehensive management support for daily operations under a separate agreement, charging an arm’s length management fee.
The arrangement
(a) The Applicant purchased a vessel of 172,521 gross tonnage (“the Vessel”) and leased it to a lessee pursuant to a standard bareboat charter for a period of 12 years with an option for the lessee to extend the lease for another five years.
(b) In order to finance the acquisition of the Vessel, the Applicant borrowed an interest-bearing loan from Company A.
(c) The Applicant subsequently entered into a ship leasing management agreement with Company A under which Company A agreed to provide comprehensive support to the day-to-day business operations of the Applicant in Hong Kong, including its ship leasing activities, and the Applicant agreed and undertook to pay a management fee to Company A on an annual basis. The management fee is determined on an arm’s length basis.
(d) Invoicing and accounting for the lease of the Vessel is handled by Company A in Hong Kong. The books and records of the Applicant are maintained by Company A in Hong Kong.
(e) The Applicant is centrally managed and controlled in Hong Kong.
(f) There are at least two full-time employees to carry out activities producing profits from the ship leasing business of the Applicant in Hong Kong. All of them possess the necessary qualifications for carrying out those activities.
(g) The Applicant incurs operating expenditure of at least HKD 7,800,000 in Hong Kong annually on leasing management fee and interest expense charged by Company A for services rendered and the loan for acquisition of the Vessel.
(h) The Vessel navigated in the international waters.
The ruling
The Applicant is a qualifying ship lessor as it satisfies the conditions under section 14P(2) of the IRO and thus, its assessable profits, subject to sections 14P(4) and 14P(6), are chargeable to profits tax at the rate specified in Schedule 8C to the extent to which those profits are assessable profits derived from its qualifying ship leasing activity by virtue of section 14P(1) of the IRO.
The period for which the ruling applies
The ruling applies for the years of assessment 2024/25 to 2028/29.
Tax treatment and validity period
As a qualifying ship lessor, the Applicant’s assessable profits from ship leasing are taxed at the rate specified in Schedule 8C, subject to sections 14P(4) and 14P(6). This ruling remains valid for years of assessment 2024/25 through 2028/29, provided all transactions with associated companies continue on an arm’s length basis and substantial activity requirements are maintained.
