Hong Kong eyes becoming a 'viable base' for aviation leasing operations

That's if a more competitive taxation scheme is enforced.

The proposed changes to taxation put forward in this year’s Policy Address could transform the aviation leasing industry.

According to a release from PwC, during the recently concluded address the Chief Executive Leung Chun-ying announced a consultation period in order to collect views on changes to tax regulations within the industry.

If a more competitive taxation regime is approved, Hong Kong could rapidly become a highly viable base for aviation leasing operations serving China and markets worldwide.

“The development of this industry will have a major impact on two of Hong Kong’s pillar industries: namely financial services and logistics,” says Simon Cheng, Capital Markets and Accounting Advisory Partner, PwC Hong Kong.

“We believe this will create significant employment opportunities and therefore greater overall tax income for the Hong Kong economy.”

Here's more from PwC:

The aircraft leasing industry has traditionally been concentrated in the US and Ireland. However, there has been substantial growth in Singapore in recent years because it offers a similarly favourable tax regime to the other two locations.

The main obstacle for a Hong Kong-based company leasing out an aircraft is that it is taxed on gross rental income rather than profits. In Singapore and Ireland, for example, the lessor can not only claim for tax depreciation, but is also taxed at a more favourable rate.

“The forecast growth of airlines in China makes this consultation very timely,” says Clarence Leung, Asset Finance & Leasing Director, PwC Hong Kong.

“Chinese airlines are projected to need 6,000 new planes over the next 20 years, worth about US$780bn. A substantial proportion of those will be acquired through leases. Globally, about a third of aircraft are financed through leases – up from less than 1% 40 years ago.”

Looking more broadly, the Asia Pacific region is forecast to account for half the world’s air traffic growth over the next 20 years, with an annual growth rate of 6.3%.

The lure of potentially high returns has attracted substantial investments in recent years from Hong Kong, China and the broader region.

“Singapore has taken a number of important steps to create a favourable tax regime for aircraft lessors,” says Catherine Tsang, Tax Partner, PwC China.

“While changes to tax regulations should never be taken lightly, Hong Kong’s special status within China means that it could be uniquely placed to serve both Chinese airlines and those in other parts of the world.

We believe a fully fledged aviation leasing industry could bring growth to the Hong Kong economy and create jobs.”