On June 19, 2020, the long-awaited Inland Revenue (Amendment) (Ship Leasing Tax Concessions) Ordinance 2020 (the Ordinance), which introduces concessionary tax regimes for qualifying ship lessors and ship leasing managers, finally came into effect.
The Ordinance is a follow-up of the well-received tax concessions policy for aircraft leasing businesses in Hong Kong, and the new tax regime applies to revenue received on or after April 1, 2020.
i. Tax rate
The tax rates for qualifying ship lessors and ship leasing managers will be as follows:
#Note: i.e. half of the current profits tax rate for corporations.
The Ordinance targets ships in general (including barges, air-cushion vehicles, and dynamically supported crafts) but excludes junks, vessels propelled by oars, and military vessels. It also does not appear to cover seaborne units, such as offshore drilling rigs, which are not capable of navigating in water.
For qualifying ship leasing activities, the ship being leased should be over 500 gross tonnage, and be navigating solely or mainly outside Hong Kong waters.
iii. Ship leasing activities and ship leasing management activities
Ship leasing activities consist of operating leases and finance leases, including sale and leasebacks and sub-leases. Also covered are certain corollary pre- and post-lease activities such as agreeing on funding terms, acquiring target ships, monitoring or revising funding and/or leasing agreements and managing risks associated with leases.
Ship leasing management activities cover a broad range of financing and management activities relating to ship leasing, including providing intra-group financing, providing credit support for external financing, and overseeing the design and construction of newbuilds.