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Hong Kong Tax Authority discusses issues relating to concessionary tax regimes for qualifying aircraft leasing activities and nonresident funds

Executive summary

Hong Kong’s Inland Revenue Department (IRD) stated the following views1 during its 2018 annual meeting with the Hong Kong Institute of Certified Public Accountants (HKICPA):

(i) Qualifying aircraft lessors and qualifying aircraft leasing managers wanting to qualify for the 8.25% concessionary tax rate cannot subcontract out their activities to be performed outside Hong Kong.

(ii) Transactions in cryptocurrencies would generally not qualify for exemption under the tax regime for nonresident funds, unless digital tokens are regarded as “shares,” “debentures” or “interests in a collective investment scheme” under certain specific Initial Coin Offering (ICO) arrangements.

Detailed discussion

Qualifying aircraft lessors and qualifying aircraft leasing managers

Under the recently introduced concessionary tax regime,2 qualifying aircraft lessors and qualifying aircraft leasing managers must meet “substantial activity requirements” by: (i) carrying out the profit producing activities by themselves in Hong Kong; or (ii) arranging to carry out such activities by other parties in Hong Kong, before the profits of such lessors and managers are eligible to be taxed at the 8.25% concessionary tax rate.

However, if the qualifying aircraft lessors and qualifying aircraft leasing managers subcontract out part of their activities to service providers who would perform the activities outside Hong Kong, the profits would not qualify for the concessionary tax rate.

Transactions in cryptocurrencies by nonresident funds

Under the existing tax regime, nonresident funds can be exempt from profits tax in Hong Kong, if their activities in Hong Kong are restricted to “specified transactions.”3

The IRD stated that a transaction in cryptocurrencies would not be a specified transaction.

However, the IRD indicated that sales of digital tokens under an ICO in the following circumstances may be regarded as “specified transactions” and therefore qualify for the tax exemption:

  • If digital tokens offered in an ICO represent equity or ownership interests in a corporation.
  • If digital tokens were used to create a debt or liability owed by the issuer.
  • If token proceeds were managed collectively by the ICO scheme operator to invest in projects with an aim to enable holders to participate in a share of the returns provided by the projects.


1. The report was issued in November 2018 for the meeting held in May 2018.

2. For more information, see EY Global Tax Alert, Hong Kong enacts law to attract aircraft leasing and aircraft leasing management businesses, dated 7 July 2017 and Hong Kong releases new practice note on concessionary tax regime for qualifying aircraft leasing activates, dated 10 November 2017.

3. For this purpose, there are six categories of specified transactions: (i) a transaction in securities; (ii) a transaction in future contracts; (iii) a transaction in foreign exchange contracts; (iv) a transaction consisting in the making of a deposit other than by way of a money-lending business; (v) a transaction in foreign currencies; and (vi) a transaction in exchange-traded commodities.

EYG no. 012834-18Gbl

Download this Tax Alert as a PDF file.

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