December 13, 2022
Hong Kong issues trade consultation paper proposing enhancements to aircraft leasing tax concession regime
- The proposals include expanding scope of covered activities as well as relaxation of the 20% tax base concession and interest deduction rules. The introduction of specified substantial activity thresholds for the regime is also proposed.
- Taxpayers engaged in the aircraft leasing business may submit comments and suggestions to the proposals by 19 December 2022.
Under the current Hong Kong aircraft leasing tax preferential regime, qualifying aircraft lessors and aircraft leasing managers in Hong Kong are taxed at the 8.25% concessionary tax rate. There is also a tax base concession whereby the deemed taxable income from aircraft leasing is calculated at 20% of net rental income in lieu of the tax depreciation allowance.
The Hong Kong Government issued a trade consultation paper on 22 November 2022 proposing various enhancements to the current regime:
- Expanding the scope of a qualifying lease and coverage of qualifying aircraft leasing activities
- Clarifying that a bare trust leasing model will qualify for the tax concession regime
- Replacing the 20% tax base concession with a one-off 100% tax deduction of the acquisition cost of aircraft, subject to a claw back mechanism upon disposal
- No denial of the 20% tax base concession / proposed one-off 100% tax deduction under specified scenarios
- Relaxing the current stringent interest deduction rules in respect of interest payable on money borrowed to finance the acquisition of aircraft
- Introducing specified substantial activities thresholds in terms of qualified employees and operating expenditure in Hong Kong to comply with requirements of the Organisation for Economic Co-operation and Development
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
Ernst & Young LLP (United States), Hong Kong Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago