Hong Kong Shipping Tax Exemption
Hong Kong is an international maritime centre with over 150 years of maritime history, enjoying competitive advantage in high value-added maritime services with a strong maritime cluster. Recognizing the competitive landscape for maritime business in the region and subsequent to Hong Kong Government’s ambition to further attract the business presence of ship lessors as well as commercial principals of shipping activities (such as ship agents, ship managers and ship brokers), the Government has introduced ship leasing tax concession as well as shipping commercial principals tax concession in 2020 and 2022 respectively.
With the introduction of the above two tax concessions / tax exemption, Hong Kong currently has three types of tax concession available to shipping business. In this regard, Section 23B of the Inland Revenue Ordinance, since the introduction in 1992, has widely been used by most of the ship owners (which also includes a charterer) to get their shipping income exempt from Hong Kong Profits Tax being the exempt sums or offshore sourced incomes.
Below please find the summaries of three tax concessionary regime for easy reference.
Shipping industry players, in particular ship owners / ship operators and ship lessors, should pay close attention to the stance of the IRD, given that Section 23B and ship leasing tax concession in effect pose quite a lot of uncertainties, rather than clarities, to taxpayers and tax practitioners.
Services Offered by Our Tax Experts
We can assist you on the following services
ü Advise on conditions and documentation for applying for the Shipping Profits tax concession / tax exemption and the holding and business structure of multinational shipping enterprises;
ü Assist in applying for relevant tax benefits;
ü Filling in of Supplementary Form S5 of Profits Tax return; and
ü Lodging Advance Ruling Application to the Inland Revenue Department (IRD); and
ü Replying to the Inland Revenue Department (IRD) enquiry letter.
Table 1: Tax Concession / Tax Exemption Rate
0% tax rate | 8.25% tax rate | |
Ship Operator | √ International operation of Hong Kong registered ships | N/A |
Qualifying Ship Lessor | √ Operating lease & Finance Lease exceeding 1 year | N/A |
Qualifying Ship Leasing Manager | When providing services to associated qualifying ship lessor | When providing services to non- associated qualifying ship lessor |
Qualifying Ship Agent | Situation 1: When the qualifying activity is carried out for an associated ship lessor or ship leasing manager that is entitled to a concessionary tax rate of 0% or Situation 2: When the qualifying activity is carried out for an associated ship operator or ship owner whose income is exempt from tax | Situation1: When the qualifying activity is carried out for an associated ship leasing manager that is entitled to a concessionary tax rate of 8.25% or Situation 2: When the qualifying activity is carried out for an associated ship lessor or leasing manager that is entitled to a concessionary tax rate of 16.5% or Situation 3: When the qualifying activity is carried out for and unrelated ship lessor or leasing manager |
Table 2: Substantial Activity Requirements and Safe Harbor Rule
Substantial Activity Requirements | Safe Harbor Rule | |||
Shipping Principal | No. of fulltime qualified Employee | Annual operating expenditure in Hong Kong (HKD) | % of profits and assets related to qualifying activities | Tax Rate |
Qualifying Ship Lessor | ≥ 2 | ≥ 7.8 million | 100% | 0% |
Qualifying Ship Leasing Manager | ≥ 1 | ≥ 1 million | ≥ 75% | 0% / 8.25% |
Qualifying Ship Agent | ≥ 1 | ≥ 1 million | ≥ 75% | 0% / 8.25% |
Qualifying Ship Manager | ≥ 1 | ≥ 1 million | ≥ 75% | 0% / 8.25% |
Qualifying Ship Broker | ≥ 1 | ≥ 1 million | ≥ 75% | 0% / 8.25% |
