Hong Kong Aviation & Airline Tax — Expert Advisory

Under s.23C of the IRO, profits of a non-resident from the operation of ships or aircraft are exempt from profits tax, subject to reciprocity. Many airlines benefit from bilateral air services agreements (ASAs) that provide mutual exemptions. The key test is whether the airline's home jurisdiction provides equivalent exemption to HK airlines. Airlines should confirm their eligibility on a route-by-route basis.

Pilots resident in Hong Kong are subject to salaries tax on their worldwide income from employment. However, they can claim time-apportionment relief for periods spent outside HK on international duties. The calculation is based on the ratio of HK flight time / HK ground days to total days in the assessment year. Each airline may have a different agreed methodology with the IRD.

Commercial aircraft are classified as plant & machinery for capital allowance purposes. They are typically pooled in a 30% declining balance pool, attracting 60% initial allowance in the year of acquisition and 30% annual allowance thereafter. Engine overhaul costs may be capitalised and added to the pool or treated as revenue expenditure depending on the nature and accounting treatment.

Yes. Aircraft leasing is a taxable activity in Hong Kong, subject to profits tax at 16.5% for corporations. Hong Kong has positioned itself as an aircraft leasing hub with specific tax incentives: aircraft lessors can apply for a concessionary 8.25% tax rate (half the standard rate) under the Aircraft Leasing Tax Concession introduced in 2017.

In-flight duty-free sales and in-flight catering revenue earned by an airline during flights through HK airspace is generally apportioned based on the portion of the journey in HK airspace versus international airspace. For most international flights, the HK-airspace portion is small. Consult with an aviation tax specialist to establish an IRD-approved apportionment methodology.