Aircraft Leasing Tax Regime (“the Regime”)

Existing Tax Concessions

On the enactment of the Inland Revenue (Amendment) (No. 3) Ordinance 2017 (“2017 Amendment Ordinance”) in July 2017, sections 14G to 14N of the Inland Revenue Ordinance (“IRO”) are introduced to provide tax concessions to qualifying aircraft lessors and qualifying aircraft leasing managers in Hong Kong. In general, qualifying aircraft lessors are entitled to a tax concession under which only 20% of the tax base (i.e. gross lease payments less deductible expenses (excluding depreciation allowance)) (net lease payments) is assessed to compensate for their non-entitlement to depreciation allowance on the aircraft. The profits derived by qualifying aircraft lessors and qualifying aircraft leasing managers from qualifying activities are charged at 8.25%, i.e. one-half of corporate profits tax rate.

Interpretation and Practice

Details of the Department’s views and practice on the tax concessions for qualifying aircraft lessors and qualifying aircraft leasing managers introduced under the 2017 Amendment Ordinance are set out in Departmental Interpretation and Practice Notes No. 54 – Taxation of Aircraft Leasing Activities.

Legislative Amendments to the Regime

In view of the market changes and taking into account the international tax reform spearheaded by the Organisation for Economic Co-operation and Development (“OECD”) on base erosion and profit shifting (commonly known as BEPS 2.0), the Inland Revenue (Amendment) (Aircraft Leasing Tax Concessions) Ordinance 2024 (“2024 Amendment Ordinance”) was enacted on 1 March 2024 to amend the IRO. The legislative amendments cover the following aspects —

(a)

To provide qualifying aircraft lessors with tax deduction of the acquisition cost of aircraft;

(b)

To expand the scope of the Regime to include wet lease and funding lease and remove the one-year term of lease restriction;

(c)

To provide for a more general meaning of “aircraft leasing activity” so that the Regime will cover leasing activities other than leasing aircraft to aircraft operators;

(d)

To allow deduction of interest payable for acquisition of aircraft to a financier outside Hong Kong who is not a financial institution and may be an associate of the borrower; and

(e)

To prescribe threshold requirements for aircraft lessors and aircraft leasing managers qualifying for the Regime to comply with OECD’s requirement.

The legislative amendments took retrospective effect from the year of assessment 2023/24.

More information on the 2024 Amendment Ordinance
- The 2024 Amendment Ordinance
- Frequently asked questions

Certificate of Resident Status

If qualifying aircraft lessors and qualifying aircraft leasing managers require proof of resident status for the purposes of claiming tax benefits under the Comprehensive Double Taxation Agreements / Arrangement (“DTA”), please complete the appropriate form IR1313A (with the Mainland of China as DTA partner) or IR1313B (with other DTA partners) and furnish the form to this Department.

Enquiry

For any enquiries on tax reporting procedures, assessing practice, or application of Certificate of Resident status in relation to the Regime, please call 2594 1600.