Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

July 15, 2020
2020-5989

Hong Kong enacts tax concession legislation for ship lessors and ship leasing managers

Hong Kong gazetted the Inland Revenue (Amendment) (Ship leasing tax concessions) Bill 2020 (the New Law)1 on 19 June 2020, which seeks to attract ship leasing and ship leasing management businesses to Hong Kong.

The New Law applies retrospectively to transactions occurring on or after 1 April 2020.

This Alert summarizes the key provisions of the tax concessions.

Summary of tax concessions

  1. The tax rate on the qualifying profits of qualifying ship lessors derived from a qualifying ship leasing activity, in respect of both an operating lease or a finance lease (including a sale-and-leaseback arrangement), is 0%. A qualifying ship leasing activity is broadly defined to include leasing of a ship to a ship lessor (i.e., a sub-lessor), a ship leasing manager or a ship operator.2
  2. The tax rate on the qualifying profits of qualifying ship leasing managers carrying out qualifying ship leasing management activities for a non-associated qualifying ship lessor is 8.25% (i.e., 50% of the current regular corporate tax rate of 16.5%). The tax rate is reduced to 0% if the qualifying ship lessor is an associated corporation.
  3. The deemed taxable amount in respect of the qualifying ship leasing income of a qualifying ship owner-lessor derived from an operating lease is equal to 20% of rental income less deductible expenses (excluding depreciation).
  4. The taxable amount in respect of income derived from a finance lease by a qualifying ship lessor is equal to the relevant finance charges or interest received from the lease less deductible expenses.

 

Eligibility

To be eligible for the new concessionary tax regime, the following requirements3 must be met:

Qualifying activities

Average number of full-time qualified persons employed in Hong Kong

Annual operating expenditure incurred in Hong Kong

Ship leasing

2

HK$7.8 million

Ship leasing management

1

HK$1 million

Outsourced activities could also qualify if: (i) the outsourced activities are undertaken in Hong Kong; and (ii) the taxpayer adequately monitors the outsourced activities in Hong Kong.

Tax deductions for amounts paid by a closely connected person

Under the New Law, if a taxpayer is connected with a qualifying ship lessor or a qualifying ship leasing manager, and the said lessor or manager is only chargeable to tax at the concessionary tax rates (0% or 8.25%) in respect of a sum paid, the amount of tax deduction that can be claimed by the payer in Hong Kong will be reduced by the amount of tax savings obtained by the lessor or manager.

Endnotes

  1. See EY Global Tax Alert, Hong Kong introduces tax concessions for ship lessors and ship leasing managers, dated 28 February 2020.
  2. The term “ship leasing activity” also includes any of the following activities:
    1. Agreeing on funding terms in relation to the lease concerned
    2. Identifying or acquiring the ship to be so leased
    3. Setting the terms and duration of that lease
    4. Monitoring or revising any funding or other agreements in relation to that lease
    5. Managing any risks associated with that lease or with an activity mentioned in sub paragraph (i), (ii), (iii) or (iv)
  3. As the minimum requirements are only pre-requisite requirements, the satisfaction of the requirements does not guarantee the benefits under the concessionary regime.

______________________________________________

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong
Ernst & Young LLP, Hong Kong Tax Desk, New York
Ernst & Young LLP, Asia Pacific Business Group, New York

ATTACHMENT

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct