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Current developments

i Recent casesAircraft

The precedent case in repossession and enforcement against civil aircraft is rare in China's record. The bankruptcy of Dongxing Airline after the financial crisis in 2008 and the repossession of the aircraft leased to Dongxing by GECAS has been an important case that tested Chinese laws for a foreign operating lessor to repossess its aircraft.


A recent case is the arrest of a ship named MVAmin2. Because of a dispute in respect of a loan to ISIM Amin Limited, and a mortgage over the MVAmin2 provided thereto and in which ISIM Amin Limited transferred the MVAmin2 to Shokooh Sahar Kish Shipping without the permission of the lender, the lender, which is DVB Bank SE, filed an application with Xia Men Maritime Court for arresting the MVAmin2 before litigation. Xia Men Maritime Court ruled to permit such pre-litigation property preservation claim. During the litigation, the Xia Men Maritime Court putted the MVAmin2 into judicial sale upon application of DVB Bank SE for ISIM Amin Limited's failure to provide guarantee. After the judicial sale, parties reached a mediation agreement and the relevant judicial procedures carried out in other countries were ceased or withdrawn. In this case, all the parties are foreign legal entities and the case facts took place abroad; however, the plaintiff voluntarily selected a Chinese court to resolve the dispute, which fully reflects the international credibility of China's maritime justice.

ii Developments in policy and legislation

To boost its economy, China aims to cut its overall tax burden of the enterprises and has continued to reform its turnover tax system. One development worth noting is the further reform of China's value-added tax policies, particularly on deduction of the value-added tax on the interest paid by a Chinese debtor to the financial institutions from its overall value-added tax payable, and the share of value-added tax revenue between the central government and the local government that may affect the fiscal incentives provided by the local government to attract financers in the transport finance industry.

The Ministry of Finance of China and the State Taxation Administration issued the Notice on Adjusting Value-added Tax Rates on 4 April 2018, which deducted the value-added tax rates applicable to a few industries, including the leasing industry. It is expected that the value-added tax rate applicable to the leasing industry may be further reduced in 2019. China also abolished import value-added tax on aircraft 'imports by way of leasing' with effect from 1 June 2018. This helped to address the double taxation problem for cross border aircraft leasing and is expected to further boost the aircraft leasing industry. 

On 7 December 2018, the Ministry of Finance of China issued the revised Accounting Standards for Business Enterprises No. 21 – Leases (2018), which, broadly speaking, adopted the same approach under the International Financial Reports Standards (IFRS) 16 set by the International Accounting Standards Board (IASB). According to the revised accounting standards, all leases are expected to be reflected on the financial statements of Chinese airlines. The adoption of these revised accounting standards will potentially affect a number of financial tests and ratios customarily used in aircraft leasing and lending documentation in the Chinese market.