Global passenger traffic continues to grow, mainly due to an increase in the size of the middle class consumer who is eager to discover the advantages of air travel. As a result, there is an increase in the need for aircraft and supporting financing resources.

Global passenger traffic continues to grow, mainly due to an increase in the size of the middle class consumer who is eager to discover the advantages of air travel. As a result, there is an increase in the need for aircraft and supporting financing resources. A global trend has emerged of countries facilitating new funding requirements around aircraft leasing structures. Well-established countries are refocusing their regimes and new countries are introducing regimes that look very promising.

Ireland is a well-established aircraft leasing location

Ireland remains a stable location and is still recognised as the founder of the aircraft financing and leasing industry. There are several reasons why, the primary being its favourable tax regime and the number and standard of tax treaties that Ireland has with other countries. There are other reasons as well, such as a highly educated and skilled labour pool, plus the possibility of the Cape Town Convention Alternative A insolvency remedy being enforced in Ireland, and not forgetting that the Irish Aviation Authority has a reputation as a world-class registration authority and only allows aircraft on the Irish register when those aircraft and the lessee airline have complied with its stringent standards. Their requirement for proper maintenance of aircraft ensures that the aircraft retain a good marketable value, which is a key factor that aircraft lessors consider in choosing where to register their aircraft.

New countries are knocking on the door

There are new countries arriving on the horizon. Hong Kong and Singapore have both introduced new legislation to offer various advantages to the aircraft leasing industry. Both countries have long been competing to attract lucrative aircraft leasing business and have rolled out new legislation this year.

On 20 February 2017, the Singapore government announced an updated Aircraft Leasing Scheme, including an extension for five years to 31 December 2020. Any approved aircraft leasing company can benefit from:

  • a concessionary tax rate of 8% on income derived from the leasing aircraft or aircraft engine and qualifying ancillary activities
  • a withholding tax exemption on interest and qualifying related payments on loans obtained for the purchase of aircraft or aircraft engines.

Shortly after Singapore’s enhancement, the Hong Kong Inland Revenue introduced a legislative bill to promote the Hong Kong aircraft leasing industry. Its key features are:

  • a 8.25% tax rate (which is half of the prevailing tax rate)
  • the assessable amount of leasing income of a qualifying aircraft lessor is deemed to be 20% of the gross leasing income less deductible expenditure
  • no sales tax on aircraft leasing payments.

You need to be present to benefit

A key condition to note for all three countries is that the central place of management should be in the countries mentioned and substantial activities in the region must be demonstrated, including establishing a local office and having employees.

TMF Group has specialist experience and expertise in assisting companies and special purpose vehicles for owning and leasing aircraft in the jurisdictions mentioned, as well as in other countries such as the US, Sweden, France, Labuan and Norway, providing dedicated ongoing administration and compliance services to aircraft leasing structures.