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Aircraft profits Offshore Claim and Tax Concession

Hong Kong Aircraft Profits Offshore Claim and Aircraft leasing tax regime / tax Concession

Hong Kong, a leading international aviation hub, offers a unique tax environment for the aviation industry. The taxation of aircraft profits in Hong Kong recognizes the global nature of this sector, offering tax exemptions and concessions that supports the growth and success of aviation businesses.

Requirements for Tax Exemption in Aircraft Industry

For aircraft businesses in Hong Kong to claim tax exemption, they must meet certain criteria. These typically include demonstrating that the profits were derived from aircraft operations outside Hong Kong, with minimal involvement of Hong Kong-based resources. The company must also be able to provide evidence and documentation to support its claim.

Hong Kong Tax Incentive for Aircraft Leasing Activities

Eligible aircraft lessors/eligible aircraft leasing managers can enjoy a concessionary tax rate of 8.25% (i.e., half of the prevailing profits tax rate of 16.5%) on profits derived from eligible aircraft leasing activities /eligible aircraft leasing management activities, subject to certain conditions.

Additionally, for eligible lessors, only 20% of the net lease payments are considered as the taxable base, as a compensation for their non-entitlement to depreciation allowances on the aircraft. This results in an effective tax rate of 1.65%, subject to certain conditions.

Qualifying aircraft lessor / aircraft leasing manager

- A corporation carrying out qualifying aircraft leasing / aircraft leasing management activities

- Not an aircraft operator

- Not carry out in Hong Kong any activities other than qualifying aircraft leasing (management) activities, subject to safe harbor rule for aircraft leasing manger

Key Conditions for Tax Concession

- Central management and control in Hong Kong

- Qualifying activities carried out or arranged to be carried out in Hong Kong

- Not carried out by a permanent establishment outside Hong Kong

- Aircraft owned by the qualifying aircraft lessor

Enhanced aircraft leasing regime

Due to ever-changing business environment and setting for aircraft industry, the aircraft leasing regime is further amended to take up additional beneficial features: -

- The taxpayer to be taxed on actual profit with the deduction of the aircraft acquisition cost (i.e., the 20% tax base will not apply). Special arrangement exists for aircraft acquired by 2023/24;

- To expand the scope of lease and remove the term of lease restriction;

- To expand the scope of leasing activities

- To allow deduction of interest payable for acquisition of aircraft to non-financial institution financiers outside Hong Kong

- To specify the threshold of minimum economic substance requirement.

The amended ordinance took retrospective effect from the year of assessment 2023/24 (i.e., 1 April 2023).

Hong Kong Tax Residency Certificate

It is common for taxpayer in aircraft industry to obtain Hong Kong Tax Residency Certificate. Under Article 8 of OECD Comprehensive Double Taxation Treaty, qualifying aircraft profits derived by Hong Kong Tax resident corporate are only subject to Hong Kong Profits Tax. Please refer to our Article for the detailed analysis on tax residency certificate application.  

Our Services

We strive to recommend a tax-efficient business structure tailored to your specific needs. During the implementation phase, we carefully review lease and management agreements to ensure they are compliant and efficient. We also conduct a detailed transfer pricing analysis to establish fair and transparent pricing arrangements.

Additionally, we offer comprehensive tax compliance services to help mitigate any potential risks. For eligible clients, we provide assistance in applying for a Certificate of Resident status, which allows them to enjoy favorable withholding tax rates under the China-Hong Kong Double Taxation Agreement.

During the review process, we evaluate your existing aircraft leasing arrangements to determine their eligibility for tax concessions and offer advice on selecting the optimal tax concession option based on your unique circumstances.

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