13 December 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.
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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 Document ID: 2022-1871 |