Advance Ruling Case No. 78

The provision of the Ordinance

The ruling applies in respect of section 14P of the Inland Revenue Ordinance (“IRO”).

Background

(a)

The Applicant and Company A are members of a multi-national enterprise group.

(b)

Both the Applicant and Company A are companies incorporated in Hong Kong. The Applicant is a wholly owned subsidiary of Company A and solely carries on a ship leasing business. The Applicant does not have any branch, place of business nor employee outside Hong Kong.

(c)

The Applicant and Company A have the same directors and share the same place of business in Hong Kong.

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 HK$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.

The material assumption in respect of a future event or any other matter made by the Commissioner

(a)

The Applicant will elect in writing that section 14P(1) of the IRO applies to it.

(b)

During the basis period for a year of assessment to which this ruling applies:

(i)

the Applicant will exercise its central management and control in Hong Kong;

(ii)

the substantial activities requirements stipulated in section 14W(1) of the IRO will be met; and

(iii)

the Vessel will navigate solely or mainly outside the waters of Hong Kong.

(c)

All transactions entered into between the Applicant and its associated companies in relation to the ship leasing arrangement will be entered into on an arm’s length basis.

Date of ruling issued

12 November 2025