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gentlemen welcome to this uh co-production from invest hong kong uh on ship leasing with my colleagues from brussels paula kant and berlin dr wing hing my name is andrew davis i head in west hong kong here in the uk uh though i'm not in london today i'm enjoying the sunshine in the wilds for the west country so invest hong kong is a government organization from the hong kong special administrative region and it provides a free and confidential service to facilitate the setting up of businesses who want to expand in asia and using hong kong as their base now today we've got three great speakers on a very interesting topic of ship leasing and i'd like to kick off by asking benjamin wong to give us his 10 minute production thanks very much indeed benjamin benjamin you need to unmute yourself right it's great to be here today with andrew paula and wayne and of course our other speakers um christian and also clarence so um this time i will be talking about the tax regime on the ship leasing and i would like to start the presentation with asia next night please and next right now um this chart actually um shows um kind of like the life cycle of the ship ninety percent of the ship building around the world are actually being done in china in korea and japan here in asia uh and then um half of the world feed are actually owned by asian ship owners and then when the ship reaches from the end of its life cycle 80 of them are actually also demolished um demolition over here in asia also and for the cargo itself actually 4.4 billion tons of the world cargo are actually being originated launched here in asia so you can see that for the ships and also the cargo they are actually having a very strong gravitational pull here in asia and i think what the ships are in the chinese saying is kind of like the leaves fallen down to the roots so actually it starts here in asia and also ends here in asia next place and over here you can see the ship owning nations the top 10 of them greece everybody knows that is the biggest ship owning nation mainland china is at the third and then hong kong um sar is at fifth if you put together mainland china and hong kong together the total tonnage is about 308 million that we turn so that will put us at number two and again um so you can see that um china japan singapore korea actually put them all together it has a very strong representation of the ship owning nations around the world next this and the ship is meant to ship cargos and just now i mentioned these statistics which is more like um uh the around the world now what i would like to talk about is the um situation right now the current situation with kobe 19 and also the demand and supply now for the iron oil price actually we are at six years high um so um in august although this chart is showing only to july but actually in august actually um the unoil price actually was as high as 130 u.s dollars so um for this actually is mainly driven by the imports demands from china uh for the third quarter the year-on-year demand actually have increased by 24 so actually it's quite substantial uh this is mainly driven by the uh stimulus package uh in china in mainland china on infrastructure projects and um as we all know infrastructure projects usually they are being used to boost the economy so it is not surprising that we will be seeing other countries some to boost their infrastructure to help the economy to resume next now over here is um a slide on container uh on the freight rate and also the chart itself shows um also the um free in the charter rate index so you can see that the pink one is a bit jiggling but it's going up if you look at now um it has already returned back to the pre copic 19 level is very strong um and of course this very strong container freight rate is mainly driven by the supply crunch with the kovic 19 a lot of shipping lines actually they they have ships stopped stocked surfacing the routes so actually the supply is under a short supply however was that's why the freight rate has driven up so high but then what it shows more is um that the expectation of the growth in in the demand for container freight actually um is stronger than expected so actually it means that the recovery actually is faster than the expectation uh which of course is a very good sign for the shipping industry next piece and then it goes to the um recovery of the global economy and um this uh graph actually is um taken out from the economist so it shows the g20s the forecast of the g20 in terms of recovery from the kovic 19. this was this was done in august you can see that um china is the best performing one the gdp forecast was some drop only from about six percent to three percent so it's still positive whereas indonesia is number two um it's dropped to about zero and then the third one is south korea it's a negative number about minus two minus three but these three are the best performing already and here in asia so i think um uh it is um a safe bet um if you know companies or industry is trying to bet on one area around the world for the recovery first then actually it would be the asia that is going to be recovering fastest next place next place and next yes and together with that of course we need to have um uh financing and leasing for the uh ships uh can i go back to the previous practice previous one and previous one yes so now we have this and next one right anyways uh now um we have this tax tax concession uh for the ship leasing so it's mainly um a tax break for the ship leasing companies and also the ship leasing managers now for the ship leasing companies um they will be able to enjoy a zero percent tax on both operating lease and also finance lease and for the ship leasing management companies if they are associated with the qualified flash lasso the tax rate will also be 0 whereas if it if it is non-associated then the tax rate is 8.25 half of the normal rates next please and i think a lot of people whenever we talk about hong kong singapore also jump into the mind now this is a comparison between singapore and hong kong on the ship losing tax for ship leasing um profits is both um 0 for ship leasing management profits for hong kong associated companies i mentioned zero percent other companies 8.25 singapore is at 10 and then for hong kong we don't have a sunset clause whereas for singapore it is five years and it is a subject to renew for this actually we are expecting to be able to capture 12 of the market in 10 years next please and i would like to also bring in this um two news on the arbitration now we have a bim called um christian to talk about the shipley's lease the new term ship and i think um actually a great mind some think alike that's why bimco has done the shipy's new term sheet whereas we have done also the texas concession now for um for bimco actually also another bit on the arbitration is that um together with um uh new york london uh singapore now hong kong is also one of the four arbitration venue in its standard dispute resolution clause and also on arbitration we have um this new arrangement with the mainland side this interim measure what it does is um it is trying to facilitate the award of enforcement of arbitration cases here in hong kong and at the same time to protect the rights and interests of the party um so the measure actually includes uh property assets evidence and also preservation orders so actually with this it will be facilitating much better in terms of arbitration cases here in hong kong involving the mainland side next place and marine insurance is also another policy or another tax recession we have concluded for this year is actually even newer than the ship leasing tax regime so the tax is half to 8.25 for all general reinsurance business and also the selected insurance brokerage business um so for insurance i actually i would also like to mention ayumi international union of marine insurance a couple years ago they have also chosen hong kong as their first overseas hub and i think this is of course targeting the growth of the asian market no matter is mainland china or indonesia or the philippines malaysia so actually this is a very strong market for the insurance companies next please um so the last slide i would like to share is this one for those that have been following hong kong on the hong kong maritime week in november now it has become the maritime week 2021 because we have cancelled the one for this year because of the kovic 19. however some events they are still going ahead for example the asia logistics maritime aviation conference they will still be going ahead as a digital conference 17th and 18th of november and there are also couple a few other events they are still planning to go ahead in a digital person so when those are actually confirmed we will also let you know uh but for now actually please uh stay tuned for the lmac and this is the end of my presentation and i would like to hand it over back to andrew thanks very much indeed benjamin very interesting um one thing i forgot to do at the beginning was just to a couple of housekeeping rules just to remind everyone that this is being recorded and afterwards all participants will receive a pdf of the powerpoints and a link to the recording which will be on the invest hong kong youtube site questions will be live so if you have a question uh when we get to the q a session moderated by paula use the hand function at the bottom then we will unmute you and you can actually ask the question live so thanks very much um now i'd like to hand over to clarence leon from pricewaterhousecoopers who give us a really in-depth deep dive into the profit tax concessions for the ship leasing industry in hong kong so over to you clarence thank you andrew thank you nice to see you uh it's just some safe keeping i think andrew just mentioned it uh next slide uh please okay this is my details um just in case if there's any questions that today that i can answer or you'll be too shy to ask about questions uh please feel free to send me an email and i will try my best to answer any questions that you may have next please thank you okay um before i actually talk about the details of the ship leasing regime as introduced by andrew um thank you benjamin benjamin set out the scene in terms of a whole range of different policy that has been abducted by the hong kong government in um in recent years in particular this year's um as to to promote the uh shipping industry in hong kong and i thought it would be useful actually to talk about i give you uh the uh the the people online a bit of background of this piece of legislation and the purpose of this legislation in fact um we uh well the government and the industry have been working since january 2017 which is about more than three and a half years ago now at that time under the financial services development council which was a government body established in 2013 by the hong kong government as a high level cross-sectoral advisory body to kind of engage the industry of hong kong to promote further development of the financial services industry and to map out strategic direction of development and in that year fsbc uh actually took up to a a a job to study how to actually help the maritime industry in hong kong in particular maritime leasing about one and a half years later which is about 21st may 2018 and a half years later that committee actually um under the fsdc published a paper title maritime leasing okay which set out the landscape of the maritime industry in hong kong at that time and actually make several recommendations to further promote the shipping industry including uh a suggestion to the congo government that they may want to actually consider to actually um uh to actually uh to consider actually to introduce a brand new ship leasing regime to help the ship owner in terms of the financing because hong kong as you can see from the slice on the right hand side although it might be um uh sheltered by uh by our screen um you know hong kong really is to enhance the hong kong position as a international financial center and and also they hope that that ship easing regime can facilitate the ship ownership and operation further in hong kong and generate the further demand for the other maritime business services uh not to mention uh at that time um you know shipping really is kind of like from one of the backbone of the hong kong economy they have over 800 shipping related companies hong kong and the reason why the hong kong government thought the ship leasing regime is so important it's because of the particular high growth rate of the shift by lens which is about 9.6 per annum during the 2014 to 2017 period as a result of that paper published by the fsdc on the 21st may 2018 the hong kong maritime port board which is another um hong kong government organization which actually have to look after the maritime cluster in hong kong they actually continue the good work uh as done by the mst dc and uh in in under the maritime port board um the one of the subcommittee there are three committee there but it's the maritime and port development committee and i was delighted to be invited as one of the uh committee member um to actually further study this paper how to develop the ship leasing regime for hong kong and if you look at the left hand side of the slide in that committee we form a task force which has the tax people we have the financier the banking people we have our ship lawyers we have the maritime the ship owners in there together with the policy driver which is the transport and housing bureau and the tax expert from the government the financial services office tax policy unit as well as our inland revenue department so you know we um and then after after this uh uh uh you know one and a half years work um you know we uh formed this um uh promote uh finally announced the ship listening regime and the whole policy objective really is to provide a conductive environment to promote ship leaving in hong kong and hoping to build a more vibrant maritime cluster in hong kong next slide please okay the details so the whole bill is actually called the indian revenue amendment ship leasing tax concessions bill 2020 okay it was first actually announced on the 17th of january 2020 this year then is followed by the general public consultation it was amended though however on the 21st of may 2020 this year the reason why there was an amendment at such a late stages because during the consultation period the hong kong indian revenue actually sent our draft rules on the drug bill to the oecd for approval for governments okay and the oecd actually uh has uh have some commands and that was amended on the 21st of may 2020 so it is important to note that actually the the hong kong ship using regime which benjamin was mentioning about those zero percent 8.25 seems very attractive and whether this isn't allowable under the oecd guideline um the oecd has actually revealed those uh uh uh the initial draft and i understand that they will review the final draft uh later on this year but given that they have little first drops so you know i don't expect them to come back and say that oh no that that that that that's not okay um at that time the bill was expected to be passed uh into law uh by the end of june 2020 uh but in fact it was actually passed um in the uh on the 10th of june 20 2020 and then a week later on friday uh as benjamin was saying in his slides there as well it was gazette on the 19th of june so that the bill actually formally become law in hong kong the effective date though although it was passed into law formerly on the 19th of june but that's tax concession actually work retrospectively it actually applies to any sums received or accrued what's we that what we actually meant by that is that any leasing income or the incidental income actually accrued under your leasing activities on or after first april 2020 will be uh applicable under desk test concessions um so what are the concession tax rate then okay um this new regime is what we call a session 14 p start um it applies to a zero percent profit tax rate for qualifying qualifying ship that saw so it's not just any less so okay it's a qualifying ship that's sold and that qu lifying ship that saw will have to be carrying out a qualifying cheap leasing activities and and as you can see it's the slides here um it includes a lot of the different type of leasing activities operating these finances which is you know as defined by the financial statements uh subleasing some sales and respect transactions so when we design the rules we try to look at you know what are the most common uh leasing transactions that normally happen and we try to cater and include as many as possible within that new regime so that people can actually use it okay the other one we have another definition which is also very important is the qualifying ship leasing manager um again if if that qualifying ship leasing manager they have to be carrying out a qualifying ship leasing management activities if you carry out the associated corporations it is zero percent under our 14t okay and as jer as benjamin mentioned however if you that if if that leasing managers um carry out a qualifying ship leasing manager activity but then it's to a third party to tax rate then would be eight point two five percent okay people have asked me oh why there was two different tax rates why is not zero or whatever okay we you really need to understand the policy intent the policy intent is really is to promote the ship leasing industry uh um you know as part of the shipping you know uh important functions of the shipping industry cluster in hong kong so the policy in time is that okay we would be happy to provide a zero 10 percent rate provided in with certain conditions and based on our understanding most of the shipless soil which is the owner of the ship is is an spv so they don't really have any people okay employing spv and that's the reason why we have a separate term called the ship leasing manager okay that's where you know all these people are and they are actually managing those spv okay and as the policy intent is that okay for any qualifying ship that sold in hong kong during the leasing business it's going to be zero if they text the ship leasing manager for example ship listing manager have a shipping contract with the chip lasso and tax of 5.25 percent but if you look at the shipping group as a whole in hong kong all your income is from the you know releasing activities but then if the ship leasing managers takes us 8.25 then you have some tax leakage and that is the reason why we have two different tax rate there it is for uh associate companies i.e the whole group really in hong kong is doing ship leasing business then you should all your profit should be 0 that is your that should be your effective tax rate for your operation in hong kong but if you also do some business for third party who is uh it's not related party to you then all this management fee income that you receive the hong kong internet say that okay sorry then i want to text you some money but i will give you a preferential tax rate which is uh uh a half of our standard tax rate from 16.5 okay next please okay this is just a diagram to summarize what i just mentioned before um this is a typical uh shipping structure that we have seen uh in fact many people use actually um um you know there's a hong kong parent company you can see next to it bld means the bulk director in hong kong and underneath it they have a many uh uh ship that saw one two and three the qualifying ship that saw established and they all carry out ship leasing activities okay it can be loser to an unrelated non-hong kong company um the next uh ship lesson two and two uh unbelievable company uh ship lesser three to a relationship operator because uh shipping the chance the the actual transactions is so complicated right the the different operating model and then the ship music manager is next to it that's where you know i would expect that's where all the people really are and then you can see that the ping arrow there that is actually represent you know they have a um leasing management agreement okay the ship leasing manager really managing those spv because sp doesn't have an employees it also provide the ship financing and management services to some unrelated qualifying ship less so and then on the right hand side which i'm not too sure whether people can can see it but um it just summarized text ray qualifying ship let's saw and there for those color uh orange is zero and then for the qualifying ship leasing manager which is the pink and then if these associate corporations ie shift lesson one two and three because they are in the same group under the parent company then zero percent but then this is to the to the gray box and when the party is 8.25 okay thank you uh next please okay so we talked so many about qualifying ship let's saw so what is a qualifying ship let's saw then okay first of all there should be a list and as i said previously you know we try to accommodate as many leasing transactions as possible finances are included operating these are included subleasing under certain circumstances is also included okay so what are the conditions for qualifying shipping then these are the key summaries there there are a few more but these are in my own opinion are the key uh uh conditions that people should be aware of first of all it has to be a cooperation okay it has to be a company which is fair enough it cannot be a partnership because in hong kong a partnership you know the tax laws generated by them can can flow through to the shareholders uh similar to other jurisdiction the that's not the intention of the legislation so it has to be a standalone company um this this regime really is for ship leasing company so we make a uh distinction between the ship leasing company and the ship operator it cannot be a ship operator if you're a ship operator we have our uh bedrock section 23 b which is also a very very good regime for the ship operator but this regime is purely for ship leasing okay and as a ship that saw okay it has to carry out in hong kong in hong kong one or more qualifying ship leasing activities okay and they haven't really carried out uh in hong kong any other activities for example um if you are doing ship leasing but then in ship leasing you're also doing some property investments business okay in this income me no that is not allowed okay it has to be purely for ship leasing only if you want to feel uh fall within this concessional tax regime cmc is exercise in hong kong cmc by all means um the next two points is the most important points in my own opinion central management and control and that's why if you remember my diagram i put the board of directory in hong kong so ie you must have people in hong kong to exercise those central management control for that leasing business okay for for for a foreign group who wants to come to hong kong okay they it means that they might need to employ people in hong kong or they seek on people in hong kong and um you know but um in hong kong uh we didn't there's no requirement that all the director has to be in hong kong uh um we have many practical experience whereby the shareholder might be in the u.s or maybe uh in europe uh maybe in china you know you know they want to overseas their hong kong leasing a business so they may have a very senior person also acting as a hong kong director and they're willing to come to hong kong to find hong kong for uh for for board meeting together with the hong kong directors as long as the majority of directors in my opinion are in hong kong and they have the um have the relevant experience ship visa experience then the cmc should be considered to be in hong kong the other one is what i call the core income generating activities again this is kind of like under the base erosion and profit shifting concept you talk about the activities okay the profit generating activities really produce those qualifying profits the the leasing profits okay has to be in hong kong buy this by the ship that sold which is fair enough right uh or because you know sometimes as i say uh most of the operating model the ship lesson has is a sbb doesn't really have any people so as long as the dark board director arrange it arrange the ship leasing manager okay to carry out those activities on behalf of the corporation uh that's also acceptable okay and the last point is about the activities that are carried out in hong kong cannot be done by a permanent establishment a pe outside of hong kong so for example if the hong kong lesson for for whatever reason got a branch let's say in japan because it's a branch so whatever they do in japan is also taxable in hong kong but the people actually are in japan these are not allowed i don't know those people has to be in hong kong this is really consistent with the international tax environment under the bab's proposal okay and uh uh hong kong actually fully adopted these to make sure that we actually comply uh you know all the inter international test development okay the final point which is also important is about the threshold requirements okay in order to qualify as a ship that saw there's some threshold requirements and that is look at the group level the first requirement is about the average number of employees okay it has to be adequate in the opinion of the commissioner and in any event it cannot be less than two people okay total amount of operating expenditure again it has to be adequate in fact this will adequate is what the amendment that i mentioned uh before on 20th of may after uh being reviewed by the oecd oecd says that originally um the the full-time employee 2 and 7.8 million seems a bit low okay um we i believe that i did explain to the uh oecd say that well surely when you first come to hong kong when you don't have that that many leasing business is no way that you know a business will want to employ many many people which is accepted by the oecd but they suggest that may perhaps as the times move on they will have more uh leasing spv or the business business getting bigger and bigger then surely you know just having two people or just having 7.8 million hong kong dollar is not going to be enough and that's the reason why we put the adequate in there okay um um for the 7.8 million uh because we're talking about ship less so uh most people would know that well um you know in a ship less so really you don't really have a lot of expenses in there except for the management fee um you know the uh the ship which is a capital expenditure it's not a corporate expenditure right um interest expenses interest expenses okay because unless so we'll need to borrow money from my bank or from internally to purchase the ship okay those interest expenses are considered as operating expenditure because of the business okay unlike into some other industry whereby interests may not be considered operating expenses but in hong kong for leasing business interests are actually considered as a part of operating expenditure so um hopefully that should not create too much of a problem okay uh hong kong 7.8 million dollar is about us dollar one million only okay next please um that that uh ship that sold will have to do a qualifying ship leasing activities obviously because it's a leasing business so uh what is a ship leasing activities then is a leasing of shift basically and it's by the person you know the person means this the ship that sold to a ship that saw to a ship leasing manager or a ship operator the reason why we have such a definition is to really to try to encompass many different transactions as possible because we know in the shipping world okay all these um shipping transactions have many layers sometimes and some doing that many layers you know that can be another ship that saw or can be a ship leasing manager or in fact it's in this most simple form it's a leasing from alexa directly to operator who use the ship you to take the cargo from them from a place a to b something like that but in here we try to expand it try to cover as many practical situations as possible so that people can actually use this regime okay but having a ship leasing activity is not enough it has to be a qualifying ship leasing activities okay in order to fall within the regime and what you say qualifying ship leasing activities quite simple really that leading activity has to be in the ordinary course of the operation okay that is your business basically so if your sdv then you know if you have a ship if you're losing it then that should fulfill that condition and there's also a a definition for ship okay the ship has to be over 500 uh gross tannish this is under our mountain uh law okay not registered ship okay and navigate okay that is the important part that ship has to be navigated solely or mainly outside hong kong waters okay uh in other in other words really this regime really look at international shipping business okay if you are domestic ie uh in hong kong we have a ferry company who actually uh ferry the people from one side the island to the other side this regime is not for this type of company okay because the you know those vary they use only use for hong kong we have a separate tax regime for that okay this regime is to look at international shipping business okay and then finally about let's see then because you're losing it right so you know you have the lease and then you have let's see there's also some condition for the ship let's see the ship let's see can be a shift vessel in the change of direction can be a ship music manager or ship operator as the case may be okay and it can be a hong kong or non-hong kong entity so it captures quite a wide range of different companies next please okay then the actual incentive then okay we talk about the super saiyan super saiyan so why do we want to look at this slice current if you look at it okay there's some differences for operating leases ap mean the accessible profits so it's like okay is the is your gross lease payments minus all the detectable expenses so capital expenditure accounting depreciation of the ship is not detectable okay times 20 only if you own the ship okay only if you own the ship okay um all if you look at the top right hand corner i think um this kind of way includes a let's see under funding these uh daily under high purchase or under conditional cell so owning doesn't mean the legal ownership is also include the beneficial and economic ownership so it's again make it more flexible for people to use it okay if you own the ship then we have this 20 percent there because in hong kong um when you're leasing the ship to a foreign operator you cannot claim the tax depreciation or in the other jurisdiction we call it the capital allowances okay in order to replace the 20 percent uh sorry the the loss of the depreciation we we said we will only tax you 20 of that income okay and hence that's why you have 20 percent okay and then if it's up for funding this funding lease really means that uh it's kind of like a finance although we have our own definition but you know uh you can take it as a finance so in the finance then under the hong kong tax law we don't consider it as a you own the ship so you you're not entitled to the tax depreciation in the first place so the accessible profit then would be the gross payments of the finance charges and interest so it's not the gross lease payment it's only the finance element because the funding lease right minus all the all those deductible expenses including any interest expenses that's made you might incurred okay time to serve percent tax rate okay final problem which i think is a very very important point very important and it's different from the other transactions in the other jurisdiction you know when you own a ship that you're able to claim capital allowances when you dispose of a ship the money the cell persists you you will probably have to pay tax on you will bring the tax posses in the capital arms pool so that you tax a whole lot but in hong kong because they had never given you the division allowance and they said that uh if you only ship more than three years today immediately before you dispose it any money that you receive from from uh selling the ship is completely tax free and that's why i think it's going to generate a lot of interest in there okay because hong kong have an airc aft leasing regime the rules are very similar uh one of the big attractions when i talk to the aircraft let's saw why they want to come to hong kong is you know apart from the 20 percent of the 8.35 back up leasing 8.25 not zero okay um it's the capital gain exemption because uh you know they many people will buy and sell the uh aircraft in that station they'll have to pay tax on the whole lot but in hong kong as long as they own the aircraft more than three years they don't pay tax and now the same condition applies to ship leasing business next please uh very quickly um uh uh similar to the ship last saw uh as i explained there's another important term for ship leasing manager again it's very similar the concept uh for the ship lasso uh it has to be a corporation it cannot be a ship operator because it's a ship leasing regime um it has to be carried out those uh qualifying ship music management activities in hong kong okay and not elsewhere okay um the the central management control has to be exercised in hong kong similar to the ship less so again the the uh the core income generating activities okay what what sometimes i call the substance requirement has to be in hong kong i.e you really have must have the people in hong kong okay uh doing that business and then there's also a threshold requirements um it's going to be saying at the measure group level and i understand from the iod uh recently that they're going to um provide some example to illustrate you know how do they look at the group level to for the threshold requirements uh next please okay um i didn't talk about safety safe harbor rules actually um there's some safe type of rules just in case for people when when the when the ship leasing manager may be also acting as a holding company and then they have a many uh ship less saw underneath it and then when the ship less sold uh paid dividend income right after many years so suddenly in that particular year they have a very big chunk of uh dividend income which in theory is not leasing management activities business whatsoever right is a different income so there are some safe harbor rules uh for structure like these to say is that okay um if it's just one year but then in the previous uh two year or when we looked at three years concept uh your profit percentage actually more than 75 percent is from generating from a ship music management assets and the profit then you know you will still satisfy that you're a qualified ship music manager to qualify for the zero percent and the 8.25 percent that benjamin and i have been mentioning um in our presentation the threshold requirements uh we have the number here in this slide again very similar to the ship that saw we have two first four full-time employees in here it's just one so it's very very low but again we are mended to reflect the oecd comments really okay it has to be adequate you know to start with you have only a few missing spv maybe one is enough but for some of my clients so they have hundreds of of at least speed in hong kong one clearly it's not enough because you know having one person to manage 100 using sbb is not going to work at all uh total amount of operating expenditure again has to be adequate okay but in any event this cannot be less than hong kong 1 million dollar okay this threshold is much lower than the ship that saw remember they are totally separate business in a ship less so they will have a very big expenditure interest okay but for ship music manager then really you have the employees you might have the office you have electricity you might have uh you know all this um uh repertory filing or text filing et cetera et cetera for your day-to-day expenses expenses that's why the threshold requirements are quite different in that and then we try to accommodate um you know that and then reflected in the legislation um um because it's a ship leasing manager activity so this has to be a um it's not a ship leasing activities actually sorry that's a typo you must lie but it's a it's a ship management management uh leasing management activities okay and these include a very wide range of financing and management activities related to ship leasing including like setting up a company for ship leasing purposes managing the residual batteries uh managing the insurance um repairs maintenance and so on as long as they are really in relation to the ship and then for the cheap leasing business okay um next please okay it's just a summary uh that's my final slide um um yeah super saiyan for associated corporation if you are qualified ship leasing manager after you satisfy all this rules and conditions that i just mentioned and it's 8.25 tax rate for unrated third party now the final few points i'm not going to mention about it but um it's a conception tax regime i uh i hope that you you will find it very attractive um similar to any other jurisdictions when they have a tax regime come out they are going to be our many anti-avoidance okay transfer pricing the ownership of of of of the ship the main purpose test which is uh very uh common now in international tax what are the main purpose of you setting up a ship leasing company in hong kong it cannot be for just you know for avoiding uh paying taxes you know because hong kong zero you know there has to be a good commercial purpose um you cannot use those hong kong companies you know um for treaty shopping that's why you have those anti-treaty abuse um in my own opinion um those are just you know this is the international tax landscape this day so um whatever legislation that you look at or whatever given transaction they always have this type of legislation so they're there um just to avoid you know people are using hong kong to do to minimize the tax bill that's the main purpose but if you carry out a genuine leasing business and you go to hong kong then those anti-avoidance rules should not apply to you and i think i'm just overrun a little bit and i apologize to uh christian um you know that's the end of my presentation and i'm happy to take any questions answer later on thank you thank you very much indeed clarence and that is a really detailed explanation of leasing um very very impressing um now i'd like to hand over to christian uh from bimco he's the general counsel there and he will um take you through his presentation thanks christian thank you very much andrew um and thank you for giving me this opportunity to to participate today and and introduce shipley's our new uh standard term sheet for ship sale and leaseback transactions which we published only a few weeks ago i can see the time is really limited so i'll try to be really brief but let me still just uh thank the organizers for making time for this issue which i i hope and think will be of of relevance to to many of you attending today's webinar so just a few words about bimko and thanks for turning uh the slide that's excellent uh so uh bimco is the world's largest direct membership organization for ship owners chargers ship brokers agents and other stakeholders with within the industry our members represent just about 60 percent of the world's merchant tonnage which corresponds to to over 1 billion deadweight tons we are involved in a wide range of activities including regulatory matters training activities etc but but one of our absolute main activities over the years and and since 1905 when we were developed is when we were established sorry is the development of standard contracts and clauses for the entire industry and we have a leading position in this area worldwide and develop standards for all the major segments of the industry and and for the entire life cycle of the ship and this brings me straight to shipley so the next slide please uh so shipley's is the third standard term sheet that bimco has adopted since 2017 the two others being traditional ship financing term sheets for for term loan facilities either bilateral or syndicated term loans and shipley's has been drafted by a an expert committee that was composed of ship owners leasing companies and lawyers we try whenever we develop these standard contracts and clauses to involve all the stakeholders concerned and in this case we we were very keen of course to to involve the uh the leasing companies and and certainly the uh the asian leasing companies so we had four owner representatives from bw group navios wakung and island navigation we had four leasing company representatives from cmb financial leasing cdb leasing csic leasing and min cheng financial leasing and then we had three private practice lawyers from linklaters mayor brown and hannah ford turner so the reason why bimco decided to develop a dedicated sailor lee spec term sheet i think has already been made quite clear today by by the other presentations in the sense that that leasing has obviously become a very popular alternative to traditional financing not least in in asia [Music] and so focusing on the term sheet itself it has been drafted on the basis that it sets out indicative terms and conditions for a ship sale and lease back transaction but it does not itself create a binding legal agreement the terms and conditions of the proposed transaction will once they have been agreed be incorporated into a memorandum of agreement a bare bone charter and related security documents satisfactory to all the parties ship lease as we have codenamed the new term sheet has been based on the two existing bimcode term sheets so the two term sheets that we call ship term and ship term s4 for term loan facilities we published them in 2017 and 2018 and it was felt natural that we should uh base the third term sheet uh on on on these two existing ones and this also means that we used the the customary bimco box layout as part one so the box layout which you can see in a very small format on on the slide on the right hand side of the slide is a popular feature of of bimco documents as it enables the parties to insert the variables that they have agreed at the very beginning of of of the term sheet and part two then contains the main provisions which provide an overview of the transaction followed by specific sections dealing with the sale of the vessel the chart of the vessel and other transaction terms and finally a number of annexes have been added so they make it possible for the parties to include more specific information about issues such as change of control and financial governance in terms of the scope of application so shipley's has has mainly been developed for sale and leaseback transactions involving second-hand ships but it can be adapted to fit uh structures involving new buildings or or vessels that are under undergoing major refitting but it was important for the subcommittee to sort of focus its attention on on what it considered to be the most prevalent ship sale in these back structures the term sheet is suitable both for operating leases and and finance leases so it may have to be adjusted uh in in some cases for example by by specific purchase option or termination some terms and jokos french tax leases and similar structures is not something that we have accommodated for it was simply felt that it would add too much complexity to the term sheet but again the term sheet can be adapted as is the case for all bimco standard contracts and clauses you have the possibility as a user to to actually adapt it to fit your your particular needs and then it's important to mention that chip lease comes with explanatory notes which set out the subcommittee's reasoning and intentions behind the individual provisions so this is standard for all bimcode documents and and these notes will explain what the what the drafting committee had in mind and and it will you know the the notes will also point to issues which the party should be aware of uh if they use the term sheet for for new buildings and and issues which may be different depending on whether the term sheet is being used for a finance on operating lease and so we're actually in the process of translating the notes into chinese and they will be available soon and by way of conclusion andrew i would like to say that shipley's is is meant as a fair and balanced starting point for for the party's negotiations we know there are quite a few newcomers in the market who may not have a standard available and and we also know that that even more experienced users maybe be looking for a reference document so shipley's is sort of meant as a one-size-fits-all document for them to use and adapt to fit their particular needs so i hope this uh short presentation will have sparked some interest in the new form which can be accessed on on the bimco website so i see that the next light has come on that's excellent so you can see bimco's website and you can see my contact details i i don't know how much time we we have available for for questions i'm happy to take them but just to say that shipley's and the explanatory notes are both available on on the bimco website in uh in a in a sample copy so both members and non-members alike can actually access these documents and then you can use smart con on on bimco's secure contract editing system which is called smart con but yeah thank you for your time and happy to take any questions great thank you very much indeed christian that was very interesting and i think the audience will have found that very useful i'd now like to hand over to my colleague in brussels paula cant to moderate the panel discussion so over to you and start video hello um thank you andrew and thanks to our three speakers um we have already received um one question two questions actually from charles kinsley who has been so kind to write them in the chat but we would suggest um to unmute charles so he can ask his question in person um uh charles we have now uh unmuted you so do you want to ask your question i think they were for all panelists but please tell us who in particular oh yes good afternoon and thank you all to uh clarence christian and benjamin for their insights clarence my questions uh really are both for you first one is with the recent oecd pull up two comments that came out this week or ended last week without looking at targeting tax regimes where the the tax paid is is too low with ultimately whatever the with whatever the zero percent and i'm sure 8.25 will be below their acceptable minimum tax rate you did say that the oecd had i presume the word is blessed the hong kong concessionary regime what will happen though in light of these political comments would that have an adverse impact or will they stand by their their blessing for these structures okay um thank you for the questions that christian actually i i'm not able to get everything uh that you say because you were some hiccup but i think i got the gist of it but if this if my answer is looking uh not complete by all means let me know again um i actually been following the 2.0 actually uh quite a lot because um um that's in fact you know the reason why if you remember my slides there there's a 20 percent conception tax rate right people ask me zero anyway why do we care about 20 percent um the the reason why the audience designed the legislation this way is to really to cater for in case that 2.0 is going to come come out um you know there is going to be a minimum tax rate okay uh coming okay so so everybody will need to tax it but because in hong kong uh uh if you're doing a cross-border leasing business unlike the out of jurisdiction we do not give them the tax depreciation hence that's why we have this 20 percent that's a starting point the other starting point when we were looking at it and then um uh before the consultation the document actually published uh available i think couple days ago and although i received a copy uh which was weak i was told a a few weeks ago so so i've been studying it as as well um one when we're designing it we know that 2.0 is going to come but how what what is the actual event nobody actually knows because that was still a lot of um discussions really uh within the oecd all the countries right uh hong kong is one of the members so so they've been attending the order meeting so that we can put understand it but no one knows so um but we cater for it that's why we have a 2.0 in here the way that i look at it i think um um you know that will have an impact in all the preferential tax regime okay um in in uh no one actually knows what what is going to be the minimum tax rate um uh a couple months ago i was told maybe uh uh 13 14 but now it seems that uh maybe um 11 but some people may say to me that oh maybe 12.5 just the irish the copper corporation tax rate um there so the 8.25 and the zero percent definitely as you said um will be lower and hence you know there will be a top up in hong kong if you choose uh you know to uh to do in hong kong but i have some observation you know in terms of these uh although i don't have the full answer i haven't done the full analysis first up first observation i think this effective one zero only applies to uh corporations whereby they have a consult consolidated revenue 750 million okay so um i think not all the easing company will apply but for the big one definitely if that's applied then you you you probably need to mix with the minimum tax rate requirement but if you're not then you know that zero percent or or 8.25 percent it still stays there that's how i look at it okay okay to the extent whereby you have a consolidated uh revenue more than 750 million and then if your effective tax rate is less than what whatever the minimum tax rate that's going to be agreed by the oecd then if you choose hong kong to top up then you have to pay extra tax you know to avoid this um um uh the other jurisdiction they might say that okay i'm not going to give give you a lease deduction you know by the last seaside or the reporting tags to the benefit etc etc so but but in in arriving the key though so far i i can uh understand it the key is really to look at what would be your effective tax rate in hong kong in some of the leasing companies i've seen and certainly applied to some of my clients whereby they are part of a very big financing group in hong kong they might have a lot of different business leasing apart effect okay ship leasing aircraft leasing uh a small ticket leasing as well as the banking or security uh they are all actually taxed at different rate okay you this that's 2.0 is going to apply only if the overall uh tax that you pay in hong kong let's say are less than the minimum rate so if you have other business in hong kong which tax at the the standard rate let's say uh 16.5 percent and if those profits are much bigger than your leasing profit then i would argue and i would imagine you know um those uh leasing profit derived by the ship leasing which is zero or 8.25 as the case may be may not have any impact to you to to to to to your business even though you know on its own is is um is less than the minimum uh tax requirement but as a jurisdiction basis okay for all your group business in hong kong you may meet that so so it's not an easy answer i think um you know uh people will need to look at the uh their their own own um own business in hong kong really and then how uh how much profits they're generating uh in hong kong and what are the appropriate tax rates for those business to see whether this minimum tax based on what what what actually published so far are applicable in the other thing is also is that i have i think i've seen that um you know the the oecd is still determining as to how to look at the profits whether you should be accounting profits or whether they should look at the tax depreciation in in there um my discussion with the indian revenue because i'm an access finance and leasing business uh sorry expert really and i've been doing it over 20 years so i only i only do access financial reasoning really so you know do those big take infrastructure tech project i know how important those are testimonialization for me if you look at the accounting depreciation it's not really your uh your accessible profit you know can i uh so people uh i can say so i uh i hope you know um uh when people look at the uh capital intense industry they will they will take that uh tax depreciation available into account and then i think um you know look at this the rules it seems that okay if if as a result of the tax depreciation or capital is available and in that particular year you turn it into a loss for example then those minimum tax may not be applicable in that year so you know um this is my initial reaction i think you're right that definitely applies to it but it doesn't just apply to hong kong it will also apply to all these uh whatever preferential regime get abducted by different jurisdictions because this is going to be uh applicable to all all the people being signed up in in in the rules but how is this going to affect them i don't think it's not that easy actually um but um you know the answer that i provide just my initial uh discussion with the indian revenue how i see it it seems to me that they are all also seeing this way i think for the compliance of depth number two and zero is going to be difficult and i would imagine uh also for the shipping committee going forward so you know it is important for those shipping uh client uh on this webinar to take note of uh about this um 2.0 thank you well clarence thanks a lot for your detailed answer charles i hope that was um that was a sufficient answer to your first question um charles if you allow us this one question another question we got in for our bimco speaker um christian i i assume you're um you're still with us um a double question for bimco firstly how important is hong kong as an arbitration center for the shipping industry um and this is a question from a participant who had to leave um so that's why i asked the question and secondly where do your members the bimco members maybe come from uh and which countries uh are using your contracts on a regular basis so the two questions hong kong has an arbitration center for the shipping industry and and a bit more about your membership and the usage of your contracts thank you very much paulo with pleasure so uh i would say in relation to the importance of hong kong as an arbitration center for the shipping industry what i what i can say is that the addition of hong kong to to our dispute resolution clause uh in addition to the three other named arbitration venues reflects that of course hong kong's increased popularity as a center for dispute resolution and and also uh that it's ranked among the top maritime arbitration centers in the world but but you can also say more general terms uh that the addition of hong kong uh also reflects the importance of of asia in general in in international maritime arbitrations um i think i would leave it we'd leave it at that but that certainly also by all means to to give a very positive positive response to that question um and of course now the reference reference was made earlier to uh to the edition uh of hong kong so what we did uh if i can just spend one minute on that we sort of okay we sort of uh combined the fact that that uh that we had decided to add hong kong to uh to the three existing venues so london uh new york and singapore we combined that uh fact with uh with with the with the bimco dispute resolution clause uh having become uh more uh sort of longer and longer over the years and it it wasn't it was in effect one of the sort of the longest clauses in bimco's clause library so we had a wish for some time to to develop a shorter a shorter version of the clause and then uh combined with the fact that we were adding hong kong to the clause we we saw a good opportunity to sort of do everything in one go and and it has been a very very positive and rewarding project to to develop the new law and arbitration clause 2020 as we call it we have involved representatives from the from the four arbitration venues and developed a shorter one-size-fits-all where you can basically make your own choice amongst the four arbitration venues or of course as you have always had the possibility to do you can you can choose another venue of your of your own choice um and so the new clause is significantly shorter because it basically is this more or less the same text for for all for all the four uh venues and also the the sort of the other uh possibility uh if you want to include your own own venue and again this clause is available uh together with explanatory notes on on the bimco website um and and one at one last comment i can say on that perhaps is that the um the mediation probation used to be part of the of the bimco dispute resolution clause but we have singled that out into a separate uh a separate clause which will be available on on the bimco website so the law in arabic arbitration clause 2020 only focuses on on on those on on those matters and and it basically meant that we were able to to develop a shorter and more to the point uh clause and then as far as the bimco membership is concerned i think i touched upon it a little bit at in my introduction but we basically have members all over the world we have 1 900 members just about in in more than 120 countries and we are represented in in all all the main segments of the industry but when that said it's important to to mention that that our contracts and clauses are being used all over the world and not only by by bimco members and not only by by stakeholders in the maritime industry who are sort of uh based in the 120 countries so we we are truly uh worldwide and and we develop uh contracts and clauses for for the entire industry uh worldwide so uh so you don't have to be a member to to use the standard documents okay thanks a lot for that clarification i think that was uh also partly what the the the person who asked the question was thinking of right can everybody use those contracts um since we have gone already a bit over time is there anybody else who would like to ask a question um no then thanks for hanging in there with us it's a topic that is is quite fascinating and i would like to hand the word to my colleague wing chun from our berlin office to the make some closing remarks over to ewing thank you very much paula and thank you very much um to the insides given by benjamin clarence and christian it was really really interesting to learn about the importance of asia the continued attractiveness of hong kong as a maritime hub and especially especially of the importance of hong kong as a finance hub as a global financial center and the continuous use um as a as an arbitration center and and the role of the rule of law in hong kong and i think this is just a testament to what the hong kong government is trying to do is trying to keep the city most attractive in in asia and in china and to go forward with the developments with many many exciting developments hopefully post-covet soon and and to to to stay attractive to all businesses from all around the world and um i just wanted to stress that we from hong kong invest hong kong stand ready to to serve all all our clients from all over the world we here in europe um by paula andrew and myself here in berlin and then of course benjamin in hong kong and our other team members in our headquarters and we are happy to take all your inquiries and questions you have about hong kong and help you to expand your business in hong kong and and and contact us i think our we are going to send all um the presentation to to all participants with our contact details and i'm really really happy to speak to you soon okay back to you paula thank you very much okay thanks uh to all our attendees as well as the speakers once more benjamin uh clarence and christian uh hope to see you all for a next webinar and have a great rest of the day thank you