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Hong Kong aviation

More tax treaties needed for Hong Kong to take on Singapore, Ireland as aircraft leasing hub, industry players warn

The more double tax agreements a place has, the more attractive it is to firms – but city is lagging top two centres by some distance

PUBLISHED : Friday, 01 June, 2018, 7:32pm
UPDATED : Saturday, 02 June, 2018, 12:09pm

Hong Kong’s bid to take on Singapore and Ireland as a centre for aircraft leasing will slow down if it does not increase double tax agreements that make it attractive for companies to do business in the city, industry players warned.

Such agreements between jurisdictions spare lessors from paying taxes on profits twice – in the place they were set up and also where they operate. So the more agreements there are, the more attractive a location is to the firms – Hong Kong has 40 agreements, while Ireland has more than 70 and Singapore, over 80.

“Double tax agreements are one of the big areas where it is going to take quite a long time to compete with Ireland and Singapore,” said Paul Sheridan, CEO of Dublin-based Accipter, owned by Hong Kong’s richest man Li Ka-shing’s CK Asset Holdings.

“If you want to pick one thing that will slow down the development of Hong Kong as a leasing hub – it is going to be that,” Sheridan added at a panel discussion on aircraft leasing and fintech organised by Cathay Pacific and the Hong Kong and Irish government agencies in charge of wooing foreign investment.

To fly, Hong Kong’s aircraft lessors need more than tax breaks

The aircraft leasing business is dominated by Ireland and Singapore, which have 85 per cent of the global market, but Hong Kong has been trying to muscle in since last year. In July 2017, it rolled out tax incentives to lure more such firms, cutting their corporate tax rate in half to 8.25 per cent.

The Financial Services Development Council, a government advisory body, estimated the sector could create 15,340 jobs over 20 years, with government figures suggesting the industry, fuelled by rising demand for passenger air travel, could contribute HK$430 billion (US$55.1 billion) to the economy.

About half of the world’s commercial aircraft fleet is expected to come from a lessor in the next two decades, compared with the current 40 per cent.

US aerospace giant Boeing estimated 41,000 new aircraft would be delivered by 2036 with 16,000 planes worth US$2.5 trillion meant for Asia. Most of the aircraft would be leased.

A study found that in mainland China, 7,200 new aircraft would be needed between 2017 and 2036, accounting for 45 per cent of deliveries across Asia.

City dominates busy air routes, but budget carriers can’t get a look-in

Experts previously said Hong Kong had a number of desirable factors that put it on a fast track to becoming a global leasing centre including the tax breaks but that certain pieces of the jigsaw were still missing including institutions for training financial aviation managers.

Financial Secretary Paul Chan Mo-po, who was in Dublin to promote financial services and aircraft leasing industries, told an audience of about 70 Irish business executives that Hong Kong was “taking off” in aircraft leasing, while civil aviation was soaring in Asia and mainland China.

He invited them to look to the city as their “trusted partner in Asia, and capitalise on the massive and long-term opportunities ahead” in the global aircraft leasing business.

At the panel discussion on aircraft leasing, Stanley Hui Hon-chung, president of the Hong Kong Aircraft Leasing and Aviation Finance Association and former chief executive of the Hong Kong Airport Authority, said: “We need more to be done.”

New routes and smaller seats among aviation talking points in 2018

Benjamin Wong Kwok-fan, head of transportation and industrial at InvestHK, said the government was serious about signing more tax pacts and acknowledged that there was “a lot of room to sign a lot more”.

Wong added: “While we have been playing catch-up for the past few years, we have the benefit of what others have done and how we could get it done better.”

The event in the Irish capital was also to mark the launch of Cathay Pacific’s direct flights between Hong Kong and Dublin.

Danny Lee was reporting from Dublin