China: China Airfinance Conference 2018: Key Takeaways

Last Updated: 20 July 2018
Article by Derek Ng

China Airfinance Conference is a major annual event that highlights the latest developments and key trends in the aviation leasing industry. Here is a recap of the 2018 event that took place in Shanghai.

The following is a summary of a discussion on "How will the evolving tax incentive schemes in various regions influence lessors' and new investors' choice for their operations" at the Airfinance Conference 2018. The aircraft market is expected to flourish over the next few years with the significant growing demand for air transport. The global commercial leased aircraft asset class is predicted to reach a portfolio value of approximately US$500 bn by 2024.

As a result, the demand for aircraft financing resources is on a surging trend these days. Ireland, US, China, Hong Kong and Singapore are the key jurisdictions for aircraft leasing structures. To accommodate the continuing growth of the industry, these jurisdictions have been introducing new funding requirements around the leasing structures and refocusing their regimes.

This alone justifies the need for key players and leaders in the industry to gather and exchange insights as well as information in this annual event. Below are some important recaps on the developments of the aviation leasing industry from the conference.

Key concerns and trends highlighted in the China Airfinance Conference 2018

1. What were some of the key topics of interest?

Tax incentive schemes in different leasing hubs and developing Hong Kong as the aviation finance and leasing hub were two of the most interesting topics discussed, with Hong Kong introduced a 50% tax reduction on profits of aircraft leasing firms to just 8.25% and treatment of offshore leasing at just 1.65%, effective 2017/2018. In China, the Tianjin Free trade zone government can grant an aircraft lessor a certain percentage of tax rebate on corporate income tax and Value Added Tax (VAT) of a company.

2. What is the outlook of the aviation leasing business in Asia Pacific?

The aviation industry is expected to continue its growth over the next few years especially in China and in Hong Kong. According to the International Air Transport Association (IATA)'s forecast, it expects that more than half of the new passenger traffic over the next 20 years will be coming from Asia Pacific, and China will replace the U.S. as the world's largest aviation market by 2024. Chinese airlines will therefore see the fastest growth which will naturally boost the Hong Kong and China aircraft leasing markets.

At the same time, the Hong Kong government is introducing a new tax regime to attract new lessors or investors to make the jurisdiction a new aviation leasing hub in the region. The government introduced a concessionary regime in July 2017 to remove tax impediments that had deterred lessors from setting up operations, as reported by South China Morning Post.

This will bring Hong Kong one step closer to compete with other established leasing hubs such as Dublin, Singapore and Tianjin.

3. What are the key changes bringing impact to the aviation leasing industry?

The implementation of International Financial Reporting Standards (IFRS) 16 will be effective starting 1 January 2019 and this affects the new leases accounting reporting standard in their financial statements.

At the same time, the European Union (EU) Anti-Tax Avoidance Directive will be effective starting from 1 January 2019. Industry players need to plan their tax structure ahead in order to comply with the new regulation, especially those operating in the EU region.

4. What were the biggest key lessons from this conference?

A coexistence of several aircraft leasing hubs in the region creates a more business-friendly environment instead of the hubs treating each other as mere competitions. With adequate communication and strategic collaboration, aircraft leasing hubs in Asia Pacific can work closely together to attract more investors and this illuminates a bright future for all key players in this region.

In addition, the discussion also highlighted that capital funding/sourcing and industry talent issues are the most important areas for an aircraft leasing hub to address and overcome.

5. What does this mean to the stakeholders in the aviation leasing industry?

Other than choosing a location to set up a company, selecting and gaining the right talents, capital funding and tax regimes are the vital considerations investors should take into account in their business planning process. With the guidance and support from a right partner such as TMF Group, we can help our clients to identify opportunities, such as tax incentives in a specific jurisdiction to expand their business smoothly.

Talk To TMF Group

Given the ever-changing landscape in the aviation leasing industry in Asia Pacific, companies should realise that a one-size-fits-all approach is no longer relevant today. At TMF Group we have unrivalled expertise to help you access new markets or realise new opportunities by providing direct access to on the ground experts to help your company remain compliant with local rules and regulations, and provide firm foundations for your company's success.

Want to know more about our services? Talk to us.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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