Summary: The Inland Revenue (Amendment) (No. 3) Ordinance 2017 (the “Ordinance”), which came into effect on 7 July 2017, is legislation specifically implemented to encourage the use of Hong Kong as a jurisdiction of choice for aircraft leasing activities.

The intention of the Ordinance is to develop Hong Kong as an international aviation hub by attracting international aircraft leasing companies and managers, through competitive tax concessions, to conduct their aircraft related activities through a Hong Kong leasing platform. The proposed legislative changes could also, by implication, provide airlines with additional costs savings and benefits.

Summary of key legislative changes

The Ordinance offers two key tax concessions for qualifying Hong Kong aircraft lessors:

  1. reduction to the prevailing corporate tax rate applicable to the assessable profit of a qualifying aircraft lessor of 50%; and
  2. the leasing income of a qualifying aircraft lessor shall be deemed to be 20% of gross rental payments less deductible expenses (excluding depreciation).

The combination of these tax incentives and concessions are expected to reduce profits tax payable by a qualifying Hong Kong aircraft lessor to rates of between 2-4%.

Qualifying aircraft lease managers can also take benefit of the 50% profits tax concession rate reduction when conducting a variety of qualifying lease management activities.

Hong Kong's double tax treaties

To date, Hong Kong has entered into 37 double tax treaties (“DTTs”), three of which are pending ratification. There is an expectation that this list will continue to grow. While the number of DTTs entered into by Hong Kong is less than other international aircraft leasing hubs such as Ireland and Singapore, it is relevant to consider the detail of Hong Kong’s DTTs and compare applicable royalty withholding tax (“WHT”) rates with the DTTs entered into by Ireland or Singapore.

The following table sets out a comparison of applicable royalty WHT rates of 15 jurisdictions under applicable DTTs applying to Hong Kong and comparing those against DTTs entered into by Ireland and Singapore with the same jurisdictions.

Country Applicable Royalty Withholding Tax Rate under applicable DTT
Hong Kong Ireland Singapore
1 Mainland China 5% 6% 6%
2 Brunei 5% No tax treaty 10%
3 Indonesia 5% No tax treaty 15%
4 Hungary No withholding tax No withholding tax 5%
5 Austria No withholding tax No withholding tax 5%
6 France No withholding tax No withholding tax No withholding tax
7 Japan No withholding tax 10% 10%
8 New Zealand 5% 10% 5%
9 Portugal No withholding tax No withholding tax 10%
10 Malaysia 8% 8% 8%
11 Mexico 10% 10% 10%
12 Korea No withholding tax 0% 15%
13 South Africa No withholding tax No withholding tax 5%
14 Russia No withholding tax No withholding tax 7.5%
15 Latvia No withholding tax 5% 7.5%

Interestingly, certain DTTs entered into by Hong Kong are more favourable when compared with Ireland and Singapore. China is one such jurisdiction where the applicable WHT rate is 5%, when compared to Ireland and Singapore, apply as WHT of 6%. The applicable WHT rate between Japan and Hong Kong is zero. Ireland and Singapore both apply a WHT rate of 10%. Other DTTs entered into by Hong Kong apply a WHT rate which is lower than (or as low as) that applied by Ireland and Singapore.

Benefits for airlines

Any assessment of the advantages of using a Hong Kong leasing structure, as opposed to an Irish or Singaporean leasing platform structure, will be different from the perspective of a Lessor and an Airline. A Lessor would need to take into account the asset depreciation allowances currently permitted by Ireland and Singapore and therefore the corporate income tax savings derived from such allowances (amongst other considerations) when compared with Hong Kong’s new tax concessions (which do not allow for depreciation). From an Airline’s perspective, and particularly for those in certain specific jurisdictions, there would be a clear benefit if the leasing of the aircraft was conducted from Hong Kong rather than Ireland – one example is China where the airline would save 1% of royalty withholding taxes applied on rental income.

The tax concessions and benefits gained by a Lessor pursuant to the Ordinance should consequently flow through and benefit Airlines by providing more attractive rental rates, given the Lessor’s potential improvement to its after tax profits.


Whilst Hong Kong’s new tax regime and its growing network of DTTs provide incentives for Lessors to use Hong Kong as its leasing platform, cost savings can also be passed on to Lessees. It may be necessary for airlines to champion Hong Kong as the preferred jurisdiction when leasing aircraft from international aircraft Lessors.