Leasing companies confused by Chinese government's new withholding tax

Airline Industry Information, Dec 3, 1999

AIRLINE INDUSTRY INFORMATION-(C)1997-1999 M2 COMMUNICATIONS LTD

The Chinese government`s issuance of a directive imposing a new 20% withholding tax on aircraft lease payments has caused some confusion in the Chinese aviation industry, with airlines and leasing companies as yet undecided about who should absorb the costs.

The new tax is apparently also likely to slow growth in the aviation market, with three preliminary leasing deals having already been held up because of the tax according to AWSJ. The directive was issued on 21 September and requires that leases signed after 1 September be subject to the tax, although, under tax treaties with foreign governments, the effective rate could drop to as low as 7%.

Industry observers have suggested that the tax could result in airlines bypassing leasing companies and start dealing directly with aircraft manufacturers, but a spokesperson for European aircraft manufacturer Airbus Industrie said that there had been no evidence so far that the Chinese carriers are 'turning to the manufacturers.'