A Comparative Analysis of Aircraft Financing in Singapore and GIFT City
The aviation industry, a critical global economic driver, relies heavily on robust financial frameworks for leasing and financing aircraft. Singapore, a long-established hub for aircraft leasing, offers a mature ecosystem and a highly favorable regulatory environment. Meanwhile, Gujarat International Finance Tec-City (“GIFT City”), located in Gujarat, India, is an emerging player in this field, aiming to position itself as a significant alternative in international financial services.
This article explores and compares the tax incentives and legal frameworks offered by Singapore and GIFT City for aircraft financing.
- Regulatory Frameworks
Singapore has cemented its position as a leader in aircraft leasing and financing, leveraging its strategic location, business-friendly environment, and advanced financial infrastructure. The Monetary Authority of Singapore (“MAS”) ensures a transparent and stable regulatory environment, fostering trust among international players.
Singapore’s robust aviation leasing ecosystem includes many global lessors and financiers, offering economies of scale and expertise.
In comparison, India established GIFT City to position itself as a global financial and technological hub.
With its economy growing up to USD 3.89 trillion[i], the Government of India aims to develop GIFT City as a smart city to allow business to enjoy tax incentives and a streamlined regulatory environment. It is strategically located along the national highway 48 (Delhi-Mumbai Industrial Corridor) and is slightly less than half an hour from Ahmedabad International Airport[ii].
By way of background, the International Financial Services Centres Authority (“IFSCA”) acts as a centralised, regulatory body for financial products and institutions operating within India’s International Financial Services Centres (“IFSC”). It consolidates the regulatory responsibilities of the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority, streamlining the process of oversight[iii].
Previously, companies establishing operations in an IFSC needed approvals from both the IFSCA and the Development Commissioner of the Special Economic Zone (“SEZ”). In February 2024, the Indian government reassigned certain duties of the Development Commissioner under the SEZ Act, to the IFSCA. This change specifically applies to entities operating within the IFSC at GIFT City. This change includes appointing an IFSCA nominated officer as the “Administrator (IFSCA)” to oversee these functions. This adjustment is aimed at streamlining processes for businesses by creating a single point of regulatory interaction within IFSCs. By consolidating regulatory authority and simplifying approval procedures, it enhances efficiency and facilitates smoother operations for companies[iv].
The government of India has laid a foundation for aircraft financing within IFSC in GIFT City. A pivotal step in this was classifying “aircraft lease” as a financial product , which encompasses operating leases, financial leases and hybrid leasing models involving aircraft, helicopters and their components. By designating “aircraft lease” as a financial product, the government has ensured its inclusion under specialised financial regulations, fostering clarity in legal processes.
- Tax Incentives
Singapore provides significant tax benefits under the Aircraft Leasing Scheme[v], including a reduced corporate tax rate of 8% on income generated from leasing aircraft and engines.
Companies engaged in leasing also benefit from a withholding tax exemption on qualifying payments for foreign loans used to purchase aircraft or engines. These incentives are offered for an initial five-year period, with extensions granted based on the company’s expansion commitments[vi].
Supplies related to aircraft and parts are zero-rated, effectively exempting them from Goods and Services Tax (“GST”). The Approved Import GST Suspension Scheme (AISS) allows eligible companies to import aircraft without paying GST upfront, aiding cash flow management[vii].
Meanwhile, GIFT City offers tax and regulatory benefits to the aircraft financing sector both as (i) direct tax benefits and (ii) indirect tax benefits.
As for direct tax benefits, entities operating in the IFSC can claim a 100% profit-linked deduction for any 10 consecutive years within the first 15 years of operation[viii].
Furthermore, entities are offered a reduced Minimum Alternate Tax (“MAT”) rate, with the MAT for units in the IFSC is set at 9%, significantly lower than the standard rate for domestic companies[ix].
As to indirect tax benefits, imports of aircraft and engines into the IFSC are exempt from basic customs duty under specified conditions. In addition, there are GST exemptions. Leasing aircraft to overseas entities, IFSC units, or SEZs is GST-exempt[x].
- Dispute Resolution
In Singapore, there are several dispute resolution mechanisms for shipping disputes in Singapore, including the Singapore International Mediation Centre (“SIMC”), which administers a two-step ADR process that includes mediation. In February 2024, the Hague Court of Arbitration for Aviation signed a Memorandum of Understanding (“MOU”) with the SIMC to create a specialized mediation framework for aviation and aerospace disputes. This MOU aims to promote the incorporation of template dispute resolution clauses in Asia’s aviation industry for standardisation.
Meanwhile, GIFT City has taken significant robust measures to establish dispute resolution mechanisms. IFSCA is in the process of establishing an International Arbitration Centre within GIFT City, which aims to adopt international standards of resolving commercial disputes[xi].
- Challenges and Opportunities
Singapore’s key advantage in the aircraft sector is its well-established global reputation for stability and expertise and access to a vast network of double taxation agreements. However, due to its limited land and manpower, there can be high operational costs.
Meanwhile, GIFT City’s key benefit to the aircraft industry is its strategic location near one of the fastest-growing aviation markets. Furthermore, it offers aggressive tax incentives and reduced operational cost. However, it has limited global recognition compared to established hubs.
- Conclusion
To conclude, both Singapore and GIFT City are well-positioned to cater to the growing demand for aircraft leasing and financing in the Asia-Pacific region. Singapore is expected to retain its leadership through alignment with global trends, such as green financing. Meanwhile, GIFT City’s investor-friendly policies may attract global players looking for cost-effective alternatives.
This article was authored by our Partner Oon Thian Seng, Senior Associate Angeline Woo, Associate Kwong Wen Ying and Foreign Lawyer Su Hean Loh.
Oon & Bazul LLP’s Banking & Finance Practice has established a strong reputation with financial institutions in Singapore, particularly with merchant and trade banks. Our expertise in trade and asset finance in shipping and international trade is highly regarded. Our work includes advising on all forms of finance including syndicated, club and bilateral debt financings as well as leasing, export credit financings, seller’s credits, derivatives and other credit enhancement products, bond issues and other forms of capital raising. We are also capable of advising in specialty matters relating to conveyancing, projects & real estate and private client services. The team has capabilities in both non-contentious and contentious matters and assists banks with compliance and regulatory advice in the quickly developing AML/KYC compliance environment.
You may visit our Banking & Finance page to learn more about our practice at https://oonbazul.com/banking-finance
Disclaimer: This update is provided to you for general information and should not be relied upon as legal advice. The editor and the contributing authors expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the contents.
[i] https://www.imf.org/external/datamapper/profile/IND
[ii]https://www.pwc.in/assets/pdfs/aircraft-leasing-in-gift-ifsc.pdf
[iii] https://www.pwc.in/assets/pdfs/aircraft-leasing-in-gift-ifsc.pdf
[iv] https://www.pwc.in/assets/pdfs/aircraft-leasing-in-gift-ifsc.pdf
[v] https://www.edb.gov.sg/content/dam/edb-en/how-we-help/incentive-and-schemes/ALS%20Brochure.pdf
[vi] https://www.edb.gov.sg/content/dam/edb-en/how-we-help/incentive-and-schemes/ALS%20Brochure.pdf
[vii] https://www.iras.gov.sg/taxes/goods-services-tax-(gst)/industry-specific-gst-schemes/approved-import-gst-suspension-scheme-(aiss)-(for-aerospace-players)
[viii] https://www.pwc.in/assets/pdfs/aircraft-leasing-in-gift-ifsc.pdf
[ix] https://www.pwc.in/assets/pdfs/aircraft-leasing-in-gift-ifsc.pdf
[x] https://www.pwc.in/assets/pdfs/aircraft-leasing-in-gift-ifsc.pdf
[xi]https://ifsca.gov.in/Document/ReportandPublication/ifsc-expert-committee-report_adrc-at-ifsc16072024064809.pdf