In Hong Kong Financial Secretary John Tsang Chun-wah’s ninth budget speech, the increasing demand for air transport and aviation finance services was highlighted.
He said that the increasing demand for international air transport services will “spur the rapid growth of the aviation business in Hong Kong and Asia” and confirmed that the government will “examine the use of tax concession to boost aircraft leasing business and explore business opportunities in aerospace financing”.
The Economic Development Commission’s Transport Working Group, formed in 2013 and chaired by Hong Kong’s Chief Executive (CE), Mr. CY Leung, has been quietly chiseling out an exacting blueprint for Hong Kong future competitiveness in the global aerospace financing sector. Dewey Yee, a member of the Commission’s Working Group on Transportation and heads the Aerospace Finance Focus Group, is diligently developing very specific, in-depth and wide reaching policy measures that are purposely aimed at building Hong Kong into a global aerospace finance hub, as a means to keep its competitive edge as a world financial centre.
On April 1, 2015, Hong Kong took a first step towards creating a tax-friendly haven for aircraft leasing on April 1, when a new tax agreement between Hong Kong and the Mainland was signed by Professor K C Chan, Hong Kong’s Secretary for Financial Services and the Treasury with Mr Zhang Zhiyong, China’s Deputy Commissioner of the State Administration of Taxation.
The Fourth Protocol to the Hong Kong-China Double Tax Agreement, amended the tax liability of aircraft and ship leasing business receiving royalties.The Mainland withholding tax on royalties paid to aircraft and ship leasing business, currently at 7%, will be capped at 5%.
Hong Kong’s withholding tax on aircraft leasing is now 1% lower than Ireland. The Aerospace Finance Focus Group is continuing to work on implementing a completely new tax regime, which has been given even greater prominence by the recent Hong Kong budget speech. Such measures are understood to include renegotiating Hong Kong current’s corporate tax rate of 16.5%, and with more work to extend its double taxation treaties – Hong Kong currently has about half the treaties that Ireland and Singapore have in place.
Tsang also committed to the third runway at Hong Kong International Airport, saying that capacity issues must be addressed. When completed he said the airport would be able to handle 100 million passengers and nine million tones of cargo annually in 2030.
Tsang also said he will lead a business delegation to Central Asia this year to enable delegates to gain first-hand knowledge of the development potential of the One Belt, One Road development initiative.
The Hong Kong Monetary Authority will set up an office to facilitate the financing of infrastructure projects and pool together investors, banks and the financial sector to offer comprehensive financial services for various infrastructure projects. The impact of the One Belt, One Road initiative was discussed in Airline Economics Issue 29