1. 1. PROPOSED TRANSACTION STRUCTURE
    1. Is this the usual structure for transactions of this nature in the Relevant Jurisdiction?  
  2. 2. SEARCHES
    1. 2.1 Are there any public registers in the Relevant Jurisdiction where a search can be carried out to determine whether an order or resolution for any bankruptcy, bankruptcy protection or similar insolvency proceedings has been registered in relation to the Airline?
    2. 2.2 If so, specify which public registers, how long such searches typically take and if the fees are more than USD 100, approximately what fees apply?
  3. 3. RIGHTS AND EVIDENCE OF OWNERSHIP
    1. 3.1 In the case of the transfer of title to an aircraft registered in the Relevant Jurisdiction:
    2. 3.1.1 Is any particular form of transfer required for the transfer to be legally recognised?
    3. 3.1.2 Must any particular conditions be satisfied for the transfer to be recognised?
    4. 3.1.3 Will such a transfer still be recognised by the courts of the Relevant Jurisdiction as legally valid where the relevant aircraft is located in another jurisdiction at the time of the transfer?
    5. 3.1.4 Are any duties, taxes or fees levied on such transfer of ownership?
    6. 3.2 Other than Insolvency laws (see section 8) are there any laws which may have the effect of defeating the Owner’s right in the aircraft – for example, Government requisition? Do the laws of the Relevant Jurisdiction provide for any compensation in such circumstances ?
  4. 4. THE AIRCRAFT REGISTER – NATIONALITY OF AIRCRAFT
    1. 4.1 Has the Relevant Jurisdiction ratified any of:
    2. 4.2 If the Relevant Jurisdiction has ratified the Cape Town, see the Cape Town Convention Annex. 
    3. 4.3 If the Relevant Jurisdiction has not ratified the Cape Town Convention, has the Relevant Jurisdiction started official proceedings or given any other official indication that it will accede to or ratify the Cape Town Convention in the near future? 
    4. 4.4 Is there an Aircraft Register in the Relevant Jurisdiction and if so, what is it called and who operates it? 
    5. 4.5 If so, in relation to registration:
    6. 4.5.1 Who is responsible for registering the Aircraft – is it an owner registry or an operator registry?
    7. 4.5.2 What details would normally be recorded on the Aircraft Register upon registration of an aircraft in the Relevant Jurisdiction? If not normally recorded, is it possible to record the Lease and/or an Aircraft Mortgage on the Aircraft Register?
    8. 4.5.3 If the Aircraft Register is an operator register, is it possible to record the details of the aircraft owner/lessor and any financier with an Aircraft Mortgage?
    9. 4.5.4 If the Aircraft Register is an owner register, is registration on the Aircraft Register definitive to determine ownership of the Aircraft?
    10. 4.5.5 Are any distinctions made between aircraft employed on international routes and those used purely for domestic flights?
    11. 4.6 What documents and/or consents are required to obtain registration on the Aircraft Register and will these require any formalities (for example, notarisation, legalisation or application of apostille)?
    12. 4.7 Are there any restrictions on the legal status and/or nationality/domicile of parties seeking to register an aircraft on the Aircraft Register?
    13. 4.8 In respect of aircraft transactions connected with the Relevant Jurisdiction generally, are there any foreign Aircraft Registers that are commonly used, or should be considered, as alternatives to or in addition to registration with the Relevant Jurisdiction’s Aircraft Register? If so, what is benefit of such registration?
    14. 4.9 Are there any other filings or registrations necessary or desirable (other than the registrations already mentioned and Lease Registration – see section 5.7) in the Relevant Jurisdiction in order to ensure the validity, priority or enforceability of the transaction documents, or to perfect the interests of the Owner in the Aircraft or the transaction documents?
  5. 5. LEASES
    1. 5.1 Will the Relevant Jurisdiction recognise the concept of a lease over an aircraft?
    2. 5.2 Would the choice of English law to govern the Lease be upheld as a valid choice of law in any action in the Relevant Jurisdiction?
    3. 5.3 Must the Lease be in a particular form if it is to be valid and enforceable in the Relevant Jurisdiction (for example, must it be in the language of the Relevant Jurisdiction or be notarised, legalised or have the apostille applied)?
    4. 5.4 If the Lease must be in the language of the Relevant Jurisdiction, is it possible under the Relevant Law also to have an English version, and to provide that the English version should prevail in case of conflict with the Relevant Jurisdiction language version?
    5. 5.5 Are there any special terms that the Lease must contain or that it is advisable for the Lease to contain?
    6. 5.6 Are there any circumstances under which the Lease might be re-characterised under the laws of the Relevant Jurisdiction as:
    7. 5.6.1 a secured loan?
    8. 5.6.2 a finance (or capital) lease?
    9. 5.7 Is there a separate register for aircraft leases in the Relevant Jurisdiction?
    10. 5.8 If yes, then:
    11. 5.8.1 What documentation and/or consents are required for the registration of the Lease?
    12. 5.8.2 What registration fees are payable (if any)?
    13. 5.8.3 What information is recorded on the register? How is the eventual discharge of the Lease recorded?
    14. 5.8.4 Does any registration in respect of the Lease remain valid throughout the tenure of the Lease or does such a registration require periodic renewal? If renewal is required when must this be done and what is the approximate cost of renewal?
  6. 6. ENFORCEMENT OF LEASES (ASSUMING AIRLINE IS NOT IN A FORM OF INSOLVENCY PROTECTION)
    1. 6.1 On the occurrence of an event of default under the Lease, assuming that the Owner is permitted to do so under the terms of the Lease, can the Owner terminate the Leasing of the Aircraft under the Lease and enforce the Lease by taking physical possession of the Aircraft?
    2. 6.2 If so, can the Owner take physical possession of the Aircraft without the need for judicial proceedings in the Relevant Jurisdiction?
    3. 6.3 Where judicial proceedings in the Relevant Jurisdiction are necessary, please provide details of the proceedings, in particular:
    4. 6.3.1 What documents would the Owner as lessor need to present in order to obtain possession of the Aircraft, both before and subsequent to judgment? Can documents be copies?
    5. 6.3.2 What is the approximate cost of issuing proceedings?
    6. 6.3.3 Would the Owner be required to provide a bond, guarantee or other security in order to issue proceedings?
    7. 6.3.4 What is an estimate of the normal duration of possession proceedings from time at which all required documentation is made available – if uncontested?
    8. 6.3.5 What is an estimate of the normal duration of possession proceedings from time at which all required documentation is made available – if contested?
    9. 6.4 Where judicial proceedings are not necessary, please comment on the time limits relevant to taking possession of the Aircraft, in particular:
    10. 6.4.1 Is there a waiting period before action may be taken?
    11. 6.4.2 Is there a long stop date by which action must be taken?
    12. 6.4.3 Is a Public Auction of the aircraft required?
    13. 6.5 Apart from the judicial proceedings described above and ignoring deregistration (see section 7), is the permission of any other party (including any official body) in the Relevant Jurisdiction required to take possession of the Aircraft?  
    14. 6.6 Is there any history of actual repossession of aircraft by Owners in the Relevant Jurisdiction? If so, please provide details of any matters or issues of which an Owner should be aware.
    15. 6.7 Are there any circumstances in which the sums expressed to be payable under the Lease or obligations expressed to be assumed by the Airline in the Lease are or will be unrecoverable or unenforceable in the Relevant Jurisdiction?
    16. 6.8 Are there any restrictions on the ability of the Owner to sell the Aircraft in the Relevant Jurisdiction during the term of the Lease or, following an event of default, on termination of the leasing or pending judicial enforcement of the Lease?
    17. 6.9 Are there any export restrictions on export of a repossessed aircraft?
  7. 7. DEREGISTRATION POWER OF ATTORNEY/EXPORTATION
    1. 7.1 Can the Owner apply for deregistration of the Aircraft either at the end of the lease term or following successful repossession (with or without judicial proceedings) and is there any time period within which such application should be made?
    2. 7.2 Is the consent of the Airline required to deregister the Aircraft either by law or as a matter of custom or practice?
    3. 7.3 How long does deregistration take, both where there is co-operation from the Airline and where this is no co-operation from the Airline?
    4. 7.4 Is it possible to obtain an export licence or export permit in advance?
    5. 7.5 Approximately how long does it take to obtain an export licence or export permit? What are the costs involved?
    6. 7.6 Is it possible to obtain a certificate of deregistration in advance?
    7. 7.7 Will a power of attorney empowering the Owner to deregister and export the Aircraft from the Relevant Jurisdiction, either at the end of the lease term or following successful repossession (with or without judicial proceedings), be enforceable in the Relevant Jurisdiction?
    8. Will the courts recognise a power of attorney in the form of an IDERA and governed by English law?
    9. 7.8 If the power of attorney was stated to be irrevocable would this be enforceable against the Airline or can the Airline revoke such power of attorney?
    10. 7.9 Upon the occurrence of a bankruptcy or insolvency of the Airline is the power of attorney still effective?
  8. 8. INSOLVENCY
    1. 8.1 In the event that the Airline were to become insolvent either on a balance sheet basis (assets less than liabilities) or unable to pay debts as fall due:
    2. 8.1.1 Would the airline be required to file for insolvency protection?
    3. 8.1.2 Do the available forms of insolvency protection in the Relevant Jurisdiction involve the appointment of either an officer of the court or a specifically court appointed official to take control of the Airline (an Insolvency Official) while in insolvency protection?
    4. 8.1.3 Does the Insolvency Official have authority to negotiate and reach agreement with the Owner in relation to matters such as the payment of unpaid rent, continuation or termination of the Lease and repossession of the Aircraft without the need for court approval?
    5. 8.1.4 Does the commencement of insolvency protection involving the appointment of an Insolvency Official in the Relevant Jurisdiction have the effect of prohibiting the Owner from taking the following actions to enforce the lease after commencement of such protection:
    6. 8.1.5 Can the commencement of Insolvency Proceedings have retrospective effect in relation to any such actions taken before commencement? If so, for what period can there be a look back?
    7. 8.1.6 Is there, either under law or as a matter of practice in the Relevant Jurisdiction, a period of time within which the Insolvency Official will either “adopt” the lease and pay rent and other lease payments as an expense of the insolvency or “reject” the lease and permit the Owner to enforce such rights as it may have under the lease?
    8. 8.1.7 If the lease is “adopted” will the Insolvency Official also pay any unpaid lease payments due as at commencement of the insolvency protection?
    9. 8.1.8 If not or if the lease is “rejected”, would the Owner’s claim for any outstanding sums rank equally with other ordinary unsecured creditors of the Airline?
    10. 8.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Owner?
    11. 8.1.10 If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, will such person be entitled, under the laws of the Relevant Jurisdiction, to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?
    12. 8.1.11 Is a person other than the Airline, for example an airport authority, entitled under the laws of the Relevant Jurisdiction to seize possession of the Aircraft after commencement of Insolvency Protection and assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?
  9. 9. TAXATION
    2. 9.1.1 the Owner is incorporated and is tax resident in Ireland?
    3. Tax implications on the Owner:
    4. Taxes implications on the Airline:
    5. 9.1.2 the Owner is incorporated and is tax resident in the United Kingdom?
    6. Tax implications on the Owner:
    7. Taxes implications on the Airline:
    8. 9.1.3 the Owner is incorporated and is tax resident in Hong Kong?
    9. Tax implications on the Owner:
    10. Taxes implications on the Airline:
    11. 9.1.4 the Owner is incorporated and is tax resident in Singapore?
    12. Tax implications on the Owner:
    13. Taxes implications on the Airline:
    14. 9.1.5 the Owner is incorporated and is tax resident in Malta?
    15. Tax implications on the Owner:
    16. Taxes implications on the Airline:
    17. 9.1.6 the Owner is incorporated and is tax resident in the Channel Islands?
    18. Tax implications on the Owner:
    19. Taxes implications on the Airline:
    20. 9.1.7 the Owner is incorporated and is tax resident in the Isle of Man?
    21. Tax implications on the Owner:
    22. Taxes implications on the Airline:
    23. 9.1.8 the Owner is incorporated and is tax resident in Mauritius?
    24. Tax implications on the Owner:
    25. Taxes implications on the Airline:
    26. 9.1.9 the Owner is incorporated and is tax resident in Bermuda?
    27. Tax implications on the Owner:
    28. Taxes implications on the Airline:
    29. 9.1.10 the Owner is incorporated and is tax resident in the Cayman Islands?
    30. Tax implications on the Owner:
    31. Taxes implications on the Airline:
    33. 9.3 VAT: European Union country: under Article 148(f) of the VAT Directive, an exemption from VAT is applied to “supplies” consisting of chartering or hiring of aircraft which are used by airlines operating for reward chiefly on international routes. Therefore:
    34. 9.3.1 New lease to airline operating for reward chiefly in domestic routes: VAT will be applied to lease rentals at current rate:
    35. 9.3.2 New Lease to airline operating for reward chiefly on international routes: VAT will not be applied to lease rentals by reason of application of exemption:
    36. 9.3.3 Sale of aircraft by an aircraft lessor to another aircraft lessor of an aircraft subject to a lease to an airline operating for reward chiefly in domestic routes: 
    37. 9.3.4 Sale of aircraft by an aircraft lessor to another aircraft lessor of an aircraft subject to a lease to an airline operating for reward chiefly on international routes: VAT will be applied to purchase price:
    38. 9.3.5 If no, is this because of application of the exemption under Article 148(f) to the airline following the decision in ECJ Case C-33/2011?
    39. 9.3.6 If yes, is this because the Relevant Jurisdiction does not apply the decision in ECJ Case C-33/2011?
    40. 9.3.7 If the transaction involves the first importation of the aircraft into the EU (and assuming the aircraft is intended for use as a civil and not military aircraft) what rate of Customs Duty will apply? 
    41. 9.4 Is any stamp duty, notarial or other fee or equivalent payable in respect of the execution of the Lease, a de-registration power of attorney or any other lease related document concerning the aircraft? Will such stamp duty or fee still be payable if the relevant documents are executed and held outside the Relevant Jurisdiction? If any such amount is payable how much is it approximately?
    42. 9.5 Can any form of consent, authorisation or licence be obtained exempting the payments referred to in this Section from such tax or duty? If so, how would it be obtained?
    43. 9.6 Ignoring any taxation consequence already mentioned and any potential taxation issues if the Owner has any other connection to the Relevant Jurisdiction, is there any other Relevant Jurisdiction taxation consequence of the Owner:
    44. 9.6.1 Being owner and lessor of an aircraft registered in the Relevant Jurisdiction and operated/leased by a company incorporated or registered in the Relevant Jurisdiction?
    45. 9.6.2 Making available a lease facility to a company incorporated or regulated in the Relevant Jurisdiction?
    46. 9.6.3 Receiving rent and other lease payments under the Lease from the lessee incorporated or registered in the Relevant Jurisdiction?
    47. 9.6.4 Repossessing the aircraft and exporting the aircraft from the Relevant Jurisdiction?
    48. 9.6.5 Selling the aircraft at a profit, whether such sale is after repossession or is subject to the Lease and the lessee’s rights?
  10. 10. EXCHANGE CONTROLS
    1. 10.1 Are payments to foreign owners by companies incorporated or registered in the Relevant Jurisdiction subject to any form of exchange or similar control?
    2. 10.2 If yes, can any consents, authorisations or licences be obtained to exempt payments from any such control? How would these be obtained? Are such consents, authorisations or licences transferable?
  11. 11. INSURANCE
    1. 11.1 Is it a legal requirement to insure the Aircraft within the Relevant Jurisdiction?
    2. 11.2 If so, is there any restriction on reinsurance of the primary insurance outside the Relevant Jurisdiction?
    3. 11.3 Is there a minimum percentage of cover which a local insurer is obliged to retain, and if so, what is it?
    4. 11.4 Is it possible for local insurers to assign contracts of reinsurance? If not, is a cut-through clause enforceable?
  12. 12. LIABILITY FOR DAMAGE
    1. Can the Owner be strictly liable – liable without a requirement to prove fault or negligence – for any damage or loss caused by the Aircraft assuming Owner is an innocent owner with no operational control of the Aircraft?
  13. 13. DETENTION/CONFISCATION
    1. 13.1 Are there any rights to detain or sell the Aircraft pursuant to drug trafficking, tax or other laws or pursuant to rights of airport or air navigation authorities if the Airline fails to pay when due? 
    2. 13.2 If so, can the Aircraft be forfeited and sold without the Owner being made aware?
  14. 14. SOVEREIGN IMMUNITY
    1. 14.1 Is any Airline based in the Relevant Jurisdiction entitled to any form of sovereign or other immunity from suit which might restrict the Owner’s rights under the Lease?
    2. 14.2 Can such immunity be validly waived in advance by contract?
  15. 15. DISPUTE RESOLUTION AND RECIPROCAL ENFORCEMENT
    1. 15.1 Do the laws of the Relevant Jurisdiction permit and recognise an “asymmetric” submission to jurisdiction clause under which the lessee submits to the exclusive jurisdiction of the Courts of England but the Owner has discretion to choose a jurisdiction other than the Courts of England?
    2. 15.2 If the Lease is governed by English Law and a judgment is obtained by the Owner in the English courts, can that judgment be automatically enforced in the Relevant Jurisdiction or will the case have to be re-examined on its merits? If so what procedures must be complied with to enforce such a judgement?
    3. 15.3 Is the Relevant Jurisdiction party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) or the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the Washington Convention)? Will the courts of the Relevant Jurisdiction recognise and enforce a decision of an arbitrator?
    4. 15.4 What is the usual choice of dispute resolution in international supply contracts involving a lessor or buyer incorporated in or with its main place of business in the Relevant Jurisdiction?
  16. 16. AIRCRAFT ENGINES
    1. 16.1 If the equipment being leased to the Airline in the Relevant Jurisdiction was an Aircraft Engine either unattached to an airframe or attached to an airframe belonging to a party other than the Aircraft Engine Owner and being leased to the Airline under a separate engine lease agreement, would there be any significant changes to the responses set out above?
    2. 16.2 In particular, does the Relevant Jurisdiction recognise the separate ownership of the Aircraft Engine by the Aircraft Engine Owner when the Aircraft Engine is attached to an airframe belonging to a person other than the Aircraft Engine Owner?
    3. 16.3 Is there a register of Aircraft Engines and is the information given above in relation to registration of Aircraft and the ownership and leasing of Aircraft the same for registration of an Aircraft Engine and the ownership and leasing of such Aircraft Engine at the Aircraft Engine register?
  17. 17. ADDITIONAL INFORMATION – IS THERE ANYTHING ELSE WE SHOULD HAVE ASKED?
    1. Are there any other matters, issues, recommended courses of action or steps which can be taken to protect and/or perfect the Owner's interests, as owner and lessor of the Aircraft in the Relevant Jurisdiction or of which the Owner should be aware when contemplating leasing an aircraft to a company incorporated and operating in the Relevant Jurisdiction?

jurisdiction

China
Information current as of March 2020

1. PROPOSED TRANSACTION STRUCTURE

The Aircraft will be purchased by the Owner and leased on an operating lease basis to the Airline pursuant to the Lease. 

Is this the usual structure for transactions of this nature in the Relevant Jurisdiction?  

Yes.


2. SEARCHES

2.1 Are there any public registers in the Relevant Jurisdiction where a search can be carried out to determine whether an order or resolution for any bankruptcy, bankruptcy protection or similar insolvency proceedings has been registered in relation to the Airline?

Yes. Every bankruptcy and bankruptcy protection case being heard by the court of China will be publicly announced by the court. The announcements will include the information such as the names of the plaintiff and respondent, date of acceptance of hearing the case, time and venue for the first creditors’ meeting etc. All such announcements will be published on the website of the PRC People’s Court: https://rmfygg.court.gov.cn/. 

2.2 If so, specify which public registers, how long such searches typically take and if the fees are more than USD 100, approximately what fees apply?

All bankruptcy and bankruptcy protection announcements can be found instantaneously on the website of the PRC People’s Court: https://rmfygg.court.gov.cn/ free of charge.


3. RIGHTS AND EVIDENCE OF OWNERSHIP

3.1 In the case of the transfer of title to an aircraft registered in the Relevant Jurisdiction:

3.1.1 Is any particular form of transfer required for the transfer to be legally recognised?

The PRC law requires a written contract for transfer of the title of an aircraft. Such transfer shall be registered with the China Aviation Administration of China (“CAAC”), otherwise, the ownership of the transferee cannot be protected against a bona fide third party.

3.1.2 Must any particular conditions be satisfied for the transfer to be recognised?

Under the PRC law, a written contract shall be concluded between the seller and the buyer and the physical possession of the aircraft shall be transferred from the seller to the buyer. The PRC law also provide for various ways to substitute the need for a physical transfer of possession where a physical transfer of possession may not be practical under realistic scenarios.  E.g. if the aircraft is on lease and being operated by an airline, physical transfer to the buyer would not be required in such circumstance. The transfer of title of the aircraft shall be registered with the CAAC, otherwise, the ownership of the buyer cannot be protected against a bona fide third party.

3.1.3 Will such a transfer still be recognised by the courts of the Relevant Jurisdiction as legally valid where the relevant aircraft is located in another jurisdiction at the time of the transfer?

It depends on the governing law to such transfer. Since the target, i.e. the aircraft, is located in another jurisdiction at the time of the transfer, foreign-related civil relations exist. Pursuant to the Application of Law to Foreign-related Civil Relations in China, the parties may choose the governing law by agreement to such transfer. If the transfer is legally valid under the governing law, the court in China will recognize it accordingly despite the location of the aircraft.  

3.1.4 Are any duties, taxes or fees levied on such transfer of ownership?

The Airline in China needs to pay import duty (ranging from 1% to 5%, depending on the HS code of the specific aircraft for import) and 13% import VAT based on the dutiable value of the Aircraft. The import VAT rate can be reduced to 5% if the imported aircraft’s load-free weight is higher than 25 tons. If the aircraft has already been imported by the Airline in China through lease, when the ownership is transferred from the overseas lessor to the Airline in China, cross-border physical transfer of the aircraft is not required because the aircraft has already been imported, but the Airline in China still needs to pay import duty and import VAT based on the residual purchase price, if any, of the aircraft.

3.2 Other than Insolvency laws (see section 8) are there any laws which may have the effect of defeating the Owner’s right in the aircraft – for example, Government requisition? Do the laws of the Relevant Jurisdiction provide for any compensation in such circumstances ?

Under extraordinary circumstances may the Owner’s right in the aircraft may be defeated. Pursuant to the PRC Property Law, there are two ways of government expropriation against private property. 

a) Expropriation for temporary usage. Such expropriation is limited to the emergency purpose, such as rescue and disaster relief. Expropriated property shall, after its use, be returned to the Owner. Compensation will be made to the Owner, during or after the expropriation, only if the property is damaged or lost.

b) Permanent expropriation. Such expropriation is limited to the needs for public interest, and will result to a transfer of title from the Owner to the government. Mostly, the expropriated property is real property. Compensation will be paid to the Owner. 

There are certain other statutory rights which could defeat the Owner’s rights in the aircraft where the Owner did something illicit, such as criminal offense, breach of contract, tax evasion, etc. These may result to a detention or confiscation of the Owner’s property.


4. THE AIRCRAFT REGISTER – NATIONALITY OF AIRCRAFT

4.1 Has the Relevant Jurisdiction ratified any of:

The Chicago Convention of 1944 on International Civil Aviation? 
Yes

The 1948 Geneva Convention on the International Recognition of Rights in Aircraft?
yes

The 1933 Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft?
No

The 2001 Cape Town Convention on International Interests in Mobile Equipment and the associated Protocol on Matters Specific to Aircraft Equipment (the Cape Town Convention)?
Yes.

4.2 If the Relevant Jurisdiction has ratified the Cape Town, see the Cape Town Convention Annex. 

4.3 If the Relevant Jurisdiction has not ratified the Cape Town Convention, has the Relevant Jurisdiction started official proceedings or given any other official indication that it will accede to or ratify the Cape Town Convention in the near future? 

Not applicable.

4.4 Is there an Aircraft Register in the Relevant Jurisdiction and if so, what is it called and who operates it? 

Yes, it is called the Civil Aviation Administration of China (“CAAC”), a government authority located in Beijing and operated by the PRC Ministry of Transport. The CAAC maintains a website: http://www.caac.gov.cn.

4.5 If so, in relation to registration:

4.5.1 Who is responsible for registering the Aircraft – is it an owner registry or an operator registry?

According to the PRC Civil Aviation Law, registration of right of aircraft can be divided into four categories: (1) registration of ownership of aircraft; (2) registration of possession of aircraft (by means of sale or lease contract with a term of longer than 6 months); (3) registration of a mortgage on aircraft; and (4) registration of a civil aircraft lien.

So either the owner or the operator who leases aircraft for a term longer than 6 months or the entity who has mortgage or lien right on the aircraft can register his right to the aircraft.

4.5.2 What details would normally be recorded on the Aircraft Register upon registration of an aircraft in the Relevant Jurisdiction? If not normally recorded, is it possible to record the Lease and/or an Aircraft Mortgage on the Aircraft Register?

For all kinds of registration mentioned above under 4.5.1 including Lease and / or an Aircraft Mortgage on the Aircraft, following details will be recorded by CAAC: Nationality Mark, Registration Mark, Aircraft Model, Place and date of Manufacture, Name of Aircraft Manufacturer, Name and address of Owner and Serial Number.

For registration of ownership of aircraft, the following additional information shall be recorded:
Value of Aircraft, Manufacturing Materials, Name and Address of Mortgagee (if any), Name and Address of Actual Possessor (if different from Owner) and details of any Mortgage.

For registration of possession of aircraft, the following additional information shall be recorded:
Name and Address of Actual Possessor, Mode and Date of Acquisition of the Possession Right, Terms and Period of Possession Agreed and Name and Address of Lessor (Only if Lessor is not Owner).

For registration of mortgage on aircraft, the following additional information shall be recorded:
Details of Spare Parts and Manufacturing Materials (Including Categories, Quantity and Places of Storage), Name and Address of Mortgagee, Name and Address of Mortgagor, Debts Secured by Mortgage, Amount and Interest Rate, Reimbursement Period and Date of Acquisition of Mortgage.

For registration of civil aircraft lien, the following additional information shall be recorded:
Name and Address of Lessee only if there is a Lease on the Aircraft; Name and Address of Operator if neither Owner nor Lessee; Cause Giving Rise to the Claim; Date the Cause Arose; Description of the Event Giving Rise to the Claim; Sums claimed by the Creditor.

Lease and/or Aircraft Mortgage can be normally recorded.

4.5.3 If the Aircraft Register is an operator register, is it possible to record the details of the aircraft owner/lessor and any financier with an Aircraft Mortgage?

Yes. For details please refer to 4.5.2.

4.5.4 If the Aircraft Register is an owner register, is registration on the Aircraft Register definitive to determine ownership of the Aircraft?

Usually it is. Under the PRC Property Law and the PRC Civil Aviation Law, the acquisition of ownership of aircraft must be registered with CAAC, otherwise the ownership of the buyer cannot be protected against the bona fide third party. Registration certificate issued by CAAC is the most definitive evidence of proof of ownership of an aircraft. Only under extraordinary circumstance, may a third party apply to change or withdraw such registration where he has evidence to prove that the certificate was wrongfully issued or the owner committed fraud, such as using fake documents, to get the registration.

4.5.5 Are any distinctions made between aircraft employed on international routes and those used purely for domestic flights?

We are not aware of such distinctions.

4.6 What documents and/or consents are required to obtain registration on the Aircraft Register and will these require any formalities (for example, notarisation, legalisation or application of apostille)?

An application form, nationality certificate of aircraft, identification certificate of the person/company holds the right to aircraft, evidence documents to prove the acquisition of such right to aircraft. Any aforementioned documents not originated from China are subject to notarization and legalization. 

Parties seeking to register an aircraft can be either legal entity or natural person. No restrictions on nationality or domicile are set. However, please note that only the ownership of aircraft with Chinese nationality can be registered at CAAC.

4.8 In respect of aircraft transactions connected with the Relevant Jurisdiction generally, are there any foreign Aircraft Registers that are commonly used, or should be considered, as alternatives to or in addition to registration with the Relevant Jurisdiction’s Aircraft Register? If so, what is benefit of such registration?

No.

4.9 Are there any other filings or registrations necessary or desirable (other than the registrations already mentioned and Lease Registration – see section 5.7) in the Relevant Jurisdiction in order to ensure the validity, priority or enforceability of the transaction documents, or to perfect the interests of the Owner in the Aircraft or the transaction documents?

Other than the registrations with CAAC, no other filings are necessary. 


5. LEASES

5.1 Will the Relevant Jurisdiction recognise the concept of a lease over an aircraft?

Yes.

5.2 Would the choice of English law to govern the Lease be upheld as a valid choice of law in any action in the Relevant Jurisdiction?

Yes. As mentioned in 3.1.3, parties to the lease contract may choose the governing law by agreement if there is a foreign element. As long as the chosen English Law will not infringe the social public interests of China, it can be a valid choice of law should there be an action in China. However, please note that an England court decision will not be recognized and enforced by the court in China.

5.3 Must the Lease be in a particular form if it is to be valid and enforceable in the Relevant Jurisdiction (for example, must it be in the language of the Relevant Jurisdiction or be notarised, legalised or have the apostille applied)?

The aircraft lease contract shall be in writing, besides that there is no other form requirement. However if the leasing term is longer than 6 months, actual possessor shall register the possession at CAAC. In that case, CAAC will require a signed Chinese lease to be submitted.

5.4 If the Lease must be in the language of the Relevant Jurisdiction, is it possible under the Relevant Law also to have an English version, and to provide that the English version should prevail in case of conflict with the Relevant Jurisdiction language version?

Yes.

5.5 Are there any special terms that the Lease must contain or that it is advisable for the Lease to contain?

There are no special terms that the lease must contain. Generally leases of aircraft will be reasonably long and comprehensive documents stipulating detailed terms which are entered into after negotiation between lessor and lessee. It is advisable for a prospective lessor or lessee to retain experienced Chinese law lawyers to advise on terms.

5.6 Are there any circumstances under which the Lease might be re-characterised under the laws of the Relevant Jurisdiction as:

5.6.1 a secured loan?

No.

5.6.2 a finance (or capital) lease?

According to the PRC Generally Accepted Accounting Principles (“GAAP”), the Lease should be regarded as finance lease if any of the following conditions is met:

  1. The ownership of the Aircraft is transferred to the lessee when the leasing period ends.
  2. The lessee has the option to purchase the Aircraft.  The agreed purchase price is expected to be far lower than the fair value of the leased asset when the purchase right is exercised so that it can be reasonably expected at the inception of the leasing period that the lessee will exercise the purchase right.
  3. Even though the ownership of the Aircraft is not transferred to the lessee, the leasing period accounts for at least 75% of the life of the asset.
  4. The present value of the lowest lease payment at the beginning date of the leasing accounts for at least 90% of the fair value of the Aircraft.
  5. The Aircraft is so special in nature that only the lessee is able to use it if no large transformation is conducted. 

If the Lease fails to meet any of the conditions above, it is regarded as operating lease.

5.7 Is there a separate register for aircraft leases in the Relevant Jurisdiction?

There is no separate register for aircraft lease except CAAC.

5.8 If yes, then:

5.8.1 What documentation and/or consents are required for the registration of the Lease?

N/A

5.8.2 What registration fees are payable (if any)?

N/A

5.8.3 What information is recorded on the register? How is the eventual discharge of the Lease recorded?

N/A

5.8.4 Does any registration in respect of the Lease remain valid throughout the tenure of the Lease or does such a registration require periodic renewal? If renewal is required when must this be done and what is the approximate cost of renewal?

N/A


6. ENFORCEMENT OF LEASES (ASSUMING AIRLINE IS NOT IN A FORM OF INSOLVENCY PROTECTION)

6.1 On the occurrence of an event of default under the Lease, assuming that the Owner is permitted to do so under the terms of the Lease, can the Owner terminate the Leasing of the Aircraft under the Lease and enforce the Lease by taking physical possession of the Aircraft?

If the Owner validly terminates the Lease, the Lessee is obliged to return the Aircraft to the Owner. 

6.2 If so, can the Owner take physical possession of the Aircraft without the need for judicial proceedings in the Relevant Jurisdiction?

Yes.

6.3 Where judicial proceedings in the Relevant Jurisdiction are necessary, please provide details of the proceedings, in particular:

6.3.1 What documents would the Owner as lessor need to present in order to obtain possession of the Aircraft, both before and subsequent to judgment? Can documents be copies?

The Owner can also take judicial proceedings to take physical possession of the Aircraft. In this case, the documents required by the Owner as lessor to obtain possession of the Aircraft will vary from case to case but will include but not limited to documents evidencing ownership of the Aircraft, documents evidencing a right to repossess the Aircraft or a right to compensation and documents evidencing breach by the lessee of its obligations. This might include the lease contract, evidence as to the default, evidence of service of a notice of default. (Documents which are not in Chinese will need to be translated.) 

Principally, documents submitted as proof during proceedings shall be originals. Under certain circumstances parties may submit copies instead of originals, for example: (1) the other party recognizes the authenticity of the copy; or (2) such copy can be corroborated by other relevant proofs.

6.3.2 What is the approximate cost of issuing proceedings?

Under the PRC law, court fees will depend on the claimed amount of compensation in the complaint. Usually the losing party will have to bear the court fees. 

6.3.3 Would the Owner be required to provide a bond, guarantee or other security in order to issue proceedings?

No.

6.3.4 What is an estimate of the normal duration of possession proceedings from time at which all required documentation is made available – if uncontested?

Usually civil trial of first instance will be completed within six months from the date such case is accepted by the court. However under the PRC Civil Procedure Law, simple civil case heard by district court or its branch with clear facts, clear rights and obligation and less contention will be heard with simplified procedure. Case tried by simplified procedure shall be completed within three months from the date such case is accepted by the court.

6.3.5 What is an estimate of the normal duration of possession proceedings from time at which all required documentation is made available – if contested?

Contested case usually takes longer time than uncontested one. As mentioned in 6.3.4, usually civil trial of first instance will be completed within six months from the date such case is accepted by the court. Duration of contested case may have the possibility of being extended if such case cannot be completed within six months.

6.4 Where judicial proceedings are not necessary, please comment on the time limits relevant to taking possession of the Aircraft, in particular:

6.4.1 Is there a waiting period before action may be taken?

There is no set period of time but if there is no risk of loss or damage to the Aircraft, the lessee should be notified of the default and given a reasonable period of time to make good the default before action to repossess is taken. 

6.4.2 Is there a long stop date by which action must be taken?

No.

6.4.3 Is a Public Auction of the aircraft required?

No.

6.5 Apart from the judicial proceedings described above and ignoring deregistration (see section 7), is the permission of any other party (including any official body) in the Relevant Jurisdiction required to take possession of the Aircraft?  

No.

6.6 Is there any history of actual repossession of aircraft by Owners in the Relevant Jurisdiction? If so, please provide details of any matters or issues of which an Owner should be aware.

The self-help remedy of repossession is a legitimate way of remedy. However, we are not aware of any examples of actual repossession of aircraft. Usually the aircraft will be directly leased to another lessee or transferred to a buyer after the lease term expired/judicial proceedings.  

6.7 Are there any circumstances in which the sums expressed to be payable under the Lease or obligations expressed to be assumed by the Airline in the Lease are or will be unrecoverable or unenforceable in the Relevant Jurisdiction?

There are a number of circumstances which might affect the recoverability of sums payable or enforceability of obligations. For example, the Airline announced or was sued into bankruptcy.

6.8 Are there any restrictions on the ability of the Owner to sell the Aircraft in the Relevant Jurisdiction during the term of the Lease or, following an event of default, on termination of the leasing or pending judicial enforcement of the Lease?

No, the Owner is entitled to sell the Aircraft at any time.

6.9 Are there any export restrictions on export of a repossessed aircraft?

Generally the Owner is required to apply for an Export Certificate of Airworthiness from CAAC and a deregistration application shall be filed at CAAC once the ownership is transferred.


7. DEREGISTRATION POWER OF ATTORNEY/EXPORTATION

7.1 Can the Owner apply for deregistration of the Aircraft either at the end of the lease term or following successful repossession (with or without judicial proceedings) and is there any time period within which such application should be made?

The Owner can apply for deregistration of the Aircraft either at the end of the lease term or following successful repossession. No statutory law imposes a time limit requirement. However it is recommend that the deregistration shall be made without delay. 

The consent of the Airline is not required for the deregistration of the Aircraft. However, if some required documents were kept by the Airline, the cooperation of the Airline is required.

7.3 How long does deregistration take, both where there is co-operation from the Airline and where this is no co-operation from the Airline?

Where all application documents for deregistration are complete and accurate, CAAC’s decision of deregistration will be made within 7 working daysafter all application documents are submitted to CAAC and are accepted. Please note that time for preparation and submission of any supplemental documents required by CAAC is not included in such time frame. Thus, in practice, the registration would take an even longer period. Where the Airline does not act in a cooperative manner during the preparation of the application documents, it may also cause some delay if some required documents were kept by the Airline.

7.4 Is it possible to obtain an export licence or export permit in advance?

Yes, an Export Certificate of Airworthiness from CAAC is required before export of an aircraft or any parts. It can be obtained before deregistration of the aircraft. 

7.5 Approximately how long does it take to obtain an export licence or export permit? What are the costs involved?

After the applicant submits the application to CAAC, the decision whether to process the application or not will be made within 5 working days. The processing term depends on the scale and condition of the Aircraft, but typically takes 14 days after CAAC accepts the application documents. The cost mainly involves an inspection of the airworthiness and depends on how much the aircraft weighs.

7.6 Is it possible to obtain a certificate of deregistration in advance?

No, CAAC will deregister an aircraft once they find the aircraft is not qualified for registration or the applicant file an application for deregistration.

7.7 Will a power of attorney empowering the Owner to deregister and export the Aircraft from the Relevant Jurisdiction, either at the end of the lease term or following successful repossession (with or without judicial proceedings), be enforceable in the Relevant Jurisdiction?

Yes.

Will the courts recognise a power of attorney in the form of an IDERA and governed by English law?

Yes. For deregistration of ownership of aircraft, an IDERA issued by the Owner in such circumstance can be submitted to the CAAC . For deregistration of possession of aircraft, an IDERA issued by the operator can be submitted to the CAAC.

7.8 If the power of attorney was stated to be irrevocable would this be enforceable against the Airline or can the Airline revoke such power of attorney?

No. To revoke such power of attorney, the Airline needs to show the legal grounds. For example, the power of attorney was concluded by means of fraud, or under duress.

7.9 Upon the occurrence of a bankruptcy or insolvency of the Airline is the power of attorney still effective?

The power of attorney is still effective.


8. INSOLVENCY

8.1 In the event that the Airline were to become insolvent either on a balance sheet basis (assets less than liabilities) or unable to pay debts as fall due:

8.1.1 Would the airline be required to file for insolvency protection?

In the event that the Airline were to become insolvent either on a balance sheet basis (assets less than liabilities) or unable to pay debts as fall due, the Airline or any of its creditors can file a bankruptcy proceeding under the PRC Law. However, please note that alternatively, the Airline may also carry out restructuring. 

8.1.2 Do the available forms of insolvency protection in the Relevant Jurisdiction involve the appointment of either an officer of the court or a specifically court appointed official to take control of the Airline (an Insolvency Official) while in insolvency protection?

If the court accepts a bankruptcy petition, it shall simultaneously appoint an insolvency administrator to take control of the Airline. The insolvency administrator can be undertaken by a liquidation team comprising personnel from the relevant authorities and institutions, a law firm, an accounting firm or a liquidation firm.

8.1.3 Does the Insolvency Official have authority to negotiate and reach agreement with the Owner in relation to matters such as the payment of unpaid rent, continuation or termination of the Lease and repossession of the Aircraft without the need for court approval?

Upon acceptance of the bankruptcy petition by the court, the insolvency administrator is entitled to decide whether to rescind or continue with the performance of the contracts which have been concluded before the acceptance of the bankruptcy application. The insolvency administrator shall notify the Creditors' Committee, which is composed of all creditors who have filed claims to the court according to law, in time about the above decision. However, if such decision was made prior to the first creditors' meeting, the insolvency administrator shall first obtain the approval of the court.

8.1.4 Does the commencement of insolvency protection involving the appointment of an Insolvency Official in the Relevant Jurisdiction have the effect of prohibiting the Owner from taking the following actions to enforce the lease after commencement of such protection:
  • (a.) Applying any security deposit held by the Owner against any unpaid amounts due under the Lease? No. The Security Deposit held by the Owner does not need to be passed over to the Insolvency administrator and can be applied by the Owner against any unpaid amounts due under the Lease according to the lease contract. 
  • (b.) Accepting payment of rent or other lease payments from:
    1. the Airline? After the court accepts the bankruptcy petition, the debts payment by the Airline to any specific creditor is invalid. b) Within six months before the court accepts the application for bankruptcy, if the Airline pays off debts to specific creditors, the insolvency administrator is entitled to claw back such payment.   
    2. a guarantor? The Owner is not prohibited from accepting payments from a guarantor.
    3. a shareholder? The Owner is not prohibited from accepting payments from a shareholder. 
  • (c.) Giving notice of default under the lease? Notice of default may be given and there is no any restriction on serving a default notice where the lease has not been terminated. However, such notice issued by the Owner would have no legal effect due to the reason that upon acceptance of the application for bankruptcy by the court, it is the insolvency administrator who is entitled to rescind the contracts.  
  • (d.) Obtaining a judgment or arbitral award for unpaid lease payments? After acceptance of bankruptcy petition, if any creditor files any petition with regard to the payment with the Airline’s property before the court, the court will not accept such petition.
  • (e.) Giving notice to terminate the leasing of the Aircraft? The termination of the lease contract by the Lessor is not permitted after the bankruptcy petition is accepted by the court. The insolvency administrator has a right to terminate such contract. Where the administrator decides to continue the performance of the lease contract, the Owner shall continue to perform the contracts. However, the Owner is entitled to ask the administrator for security. If the administrator does not provide such security, the lease contract shall be deemed as rescinded. 
  • (f.) Exercising rights to repossess the Aircraft? The Aircraft occupied or used by the Airline based on the lease contract shall not be deemed as the property of the Airline. After the acceptance of the bankruptcy petition, the Owner is allowed to take back the Aircraft through the insolvency administrator.
8.1.5 Can the commencement of Insolvency Proceedings have retrospective effect in relation to any such actions taken before commencement? If so, for what period can there be a look back?

Within one year before the court accepts the bankruptcy petition, the insolvency administrator is entitled to request the court to rescind the following activities concerning the Airline's property: i) transfer the property free of charge; ii) transfer the property at obviously unreasonable low prices; iii) provide security for the debts that originally have no security; iv) pay off in advance the debts undue; or v) waiving credits.

Within six months before the court accepts the bankruptcy petition, if the Airline pays off debts to specific creditors, the insolvency administrator is entitled to request the court to rescind the payoff unless the Airline's property benefits from such payoff.

8.1.6 Is there, either under law or as a matter of practice in the Relevant Jurisdiction, a period of time within which the Insolvency Official will either “adopt” the lease and pay rent and other lease payments as an expense of the insolvency or “reject” the lease and permit the Owner to enforce such rights as it may have under the lease?

Upon acceptance by the court of the bankruptcy petition, the insolvency administrator is entitled to rescind or continue the performance of the contracts, and notify the counterpart concerned. If the insolvency administrator fails to give a notice to the counterpart concerned within 2 month upon acceptance of the bankruptcy petition or fails to reply to the counterpart concerned within 30 days upon demand of the counterpart concerned, it shall be deemed that the contracts are rescinded. 

8.1.7 If the lease is “adopted” will the Insolvency Official also pay any unpaid lease payments due as at commencement of the insolvency protection?

If the lease is “adopted”, i.e. the lease contract continues, the lease payments due after the acceptance of the bankruptcy petition shall be made as priority expense. However, those unpaid lease payments due before acceptance of the bankruptcy petition are deemed as ordinary unsecured debt which are equal with all other general unsecured debts.

8.1.8 If not or if the lease is “rejected”, would the Owner’s claim for any outstanding sums rank equally with other ordinary unsecured creditors of the Airline?

Yes, unless the Owner has security over assets of the Airline.

8.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Owner?

The i) expenses for bankruptcy proceedings (including the lawsuit expenses, the expenditures for the management, appraisal and distribution of the Airline's property and the expenses for the insolvency administrator to perform its duties, its remuneration and expenses for engagement of workers) and the ii) debts of common benefits (including the debt generated on the ground that the insolvency administrator requests the other party to continue to perform the contract and the labor remuneration and social insurance expenses payable due to continuing the Airline's business operation) shall be paid off at any time with the Airline's property.

8.1.10 If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, will such person be entitled, under the laws of the Relevant Jurisdiction, to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?

Such person could be entitled to assert a lien. The insolvency administrator may take back the Aircraft by paying off debts to or providing guarantee acceptable to the person. The Owner could pay off the debts for the Airline and take back the aircraft with the assistance of the insolvency administrator, e.g. the insolvency administrator can issue a consent letter to the maintenance facility to instruct it to release the aircraft. Simultaneously, the Owner shall file the claim to the insolvency administrator. 

8.1.11 Is a person other than the Airline, for example an airport authority, entitled under the laws of the Relevant Jurisdiction to seize possession of the Aircraft after commencement of Insolvency Protection and assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?

Yes. The Owner could take back the aircraft with the similar approach in last item. Other than paying off the debts, providing a guarantee acceptable to such person could also be feasible. 


9. TAXATION

9.1 The decision to lease to an airline in the Relevant Jurisdiction assumes that the Owner will not be taxed on receipt of rentals or other payments (including maintenance reserves) under the Lease except by way of tax on its general income, profits or gains payable by the Owner in its place of incorporation or place of main business (if different). Will there be a requirement for the Owner to pay tax in the Relevant Jurisdiction on lease payments on basis that either the Owner is subject to taxation in the Relevant Jurisdiction by reason only of the leasing of the Aircraft under the Lease and is required to make payment itself; or payment of such tax is by way of the airline being required to withhold and account for tax from lease payments, where:

9.1.1 the Owner is incorporated and is tax resident in Ireland?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC Withholding Tax (“WHT”).  According to the Sino-Irish Double Taxation Treaty, the WHT rate can be reduced to 6% if the Owner is the beneficial owner of the lease payments.  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments. 

9.1.2 the Owner is incorporated and is tax resident in the United Kingdom?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC WHT.  According to the Sino-British Double Taxation Treaty, the WHT rate can be reduced to 6% if the Owner is the beneficial owner of the lease payments.  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments. 

9.1.3 the Owner is incorporated and is tax resident in Hong Kong?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC WHT.  According to the Mainland China-Hong Kong Double Taxation Arrangement, the WHT rate can be reduced to 5% if the Owner is the beneficial owner of the lease payments.  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments. 

9.1.4 the Owner is incorporated and is tax resident in Singapore?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC WHT.  According to the Sino-Singaporean Double Taxation Treaty, the WHT rate can be reduced to 6% if the Owner is the beneficial owner of the lease payments.  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments. 

9.1.5 the Owner is incorporated and is tax resident in Malta?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC WHT.  According to the Sino-Malta Double Taxation Treaty, the WHT rate can be reduced to 7% if the Owner is the beneficial owner of the lease payments.  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments.  

9.1.6 the Owner is incorporated and is tax resident in the Channel Islands?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC Withholding Tax (“WHT”).  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments.  

9.1.7 the Owner is incorporated and is tax resident in the Isle of Man?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC Withholding Tax (“WHT”).  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments.  

9.1.8 the Owner is incorporated and is tax resident in Mauritius?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC Withholding Tax (“WHT”).  The Sino-Mauritius Double Taxation Treaty does not further reduce the WHT rate.  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments.  

9.1.9 the Owner is incorporated and is tax resident in Bermuda?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC Withholding Tax (“WHT”).  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments.  

9.1.10 the Owner is incorporated and is tax resident in the Cayman Islands?
Tax implications on the Owner:

From 1 April 2019, the lease payments are subject to 13% PRC VAT plus local surcharges (normally around 10% of the VAT payable).  Under the PRC domestic tax law, the rental paid to the Owner is subject to 10% PRC Withholding Tax (“WHT”).  The Airline has the obligation to withhold all the PRC taxes above for the Owner, but the VAT withheld for the Owner can be used by the Airline to credit against its output VAT liabilities.

Taxes implications on the Airline:

As a general rationale, the Airline needs to pay import duty and import VAT for the lease payments, but from 1 June 2018, according to the relevant regulations, the Airline no longer needs to pay import VAT for the lease payments.  

9.2 If there is a requirement in the Relevant Jurisdiction for the airline to withhold tax on lease payments, will the courts of the Relevant Jurisdiction recognise and permit enforcement of a “gross up” clause in the Lease requiring the payment by the Airline of an additional sum to ensure the Owner receives and is entitled to retain the same net amount as would have been received in the absence of the withholding, taking account of any further withholding on account of tax required in relation to such additional sum?

Yes

9.3 VAT: European Union country: under Article 148(f) of the VAT Directive, an exemption from VAT is applied to “supplies” consisting of chartering or hiring of aircraft which are used by airlines operating for reward chiefly on international routes. Therefore:

9.3.1 New lease to airline operating for reward chiefly in domestic routes: VAT will be applied to lease rentals at current rate:

13%. For avoidance of ambiguity – if the lessee charters or hires the aircraft from the Owner for transportation, which means that the Owner provides the facilities and staff for the leased aircraft at the same time, the rental shall effectively be treated as transportation income for VAT purposes so that the VAT rate of 9% applies. However, under the current circumstance, since the Airline leases the aircraft and further provides chartering services to the customers, the lease from the Owner to the Airline is still not a “chartering” or “hiring”, thus the VAT rate of 13%.

9.3.2 New Lease to airline operating for reward chiefly on international routes: VAT will not be applied to lease rentals by reason of application of exemption:

13% VAT shall apply. For avoidance of ambiguity – if the lessee charters or hires the aircraft from the Owner for transportation, which means that the Owner provides the facilities and staff for the leased aircraft at the same time, the rental shall effectively be treated as transportation income for VAT purposes so that the VAT rate of 9% applies – whether this 9% VAT can be exempted depends on the tax-related articles of the applicable air transportation treaty between the PRC and the relevant jurisdiction. However, under the current circumstance, since the Airline leases the aircraft and further provides chartering services to the customers, the lease from the Owner to the Airline is still not a “chartering” or “hiring”, thus the VAT rate of 13% without exemption. 

9.3.3 Sale of aircraft by an aircraft lessor to another aircraft lessor of an aircraft subject to a lease to an airline operating for reward chiefly in domestic routes: 

If both the seller and the buyer are not PRC entities, no PRC VAT shall be triggered. If the buyer is a PRC entity, import VAT of 13% shall be triggered based on the dutiable value (or the residual purchase price if the lessor as the buyer buys out the ownership of the aircraft after leasing the aircraft from the lessor as the seller). The import VAT rate can be reduced to 5% if the imported aircraft’s load-free weight is higher than 25 tons.

9.3.4 Sale of aircraft by an aircraft lessor to another aircraft lessor of an aircraft subject to a lease to an airline operating for reward chiefly on international routes: VAT will be applied to purchase price:

Same as 9.3.3 

9.3.5 If no, is this because of application of the exemption under Article 148(f) to the airline following the decision in ECJ Case C-33/2011?

Not applicable.

9.3.6 If yes, is this because the Relevant Jurisdiction does not apply the decision in ECJ Case C-33/2011?

Not applicable.

9.3.7 If the transaction involves the first importation of the aircraft into the EU (and assuming the aircraft is intended for use as a civil and not military aircraft) what rate of Customs Duty will apply? 

The concept of “first sale” is not applicable under the PRC customs rules. The import duty rate ranges from 1% to 5%, depending on the HS code of the specific aircraft for import. For import through sales, the import VAT rate is generally 13%, but it can be reduced to 5% if the imported aircraft’s load-free weight is higher than 25 tons. For import through lease, the Customs office no longer levies import VAT on the rental from 1 June 2018.

Stamp duty at 0.1% of the lease payments shall be paid by both the Owner and the Airline.  Stamp duty cannot be avoided through execution of the relevant documents outside China.

No.

9.6 Ignoring any taxation consequence already mentioned and any potential taxation issues if the Owner has any other connection to the Relevant Jurisdiction, is there any other Relevant Jurisdiction taxation consequence of the Owner:

9.6.1 Being owner and lessor of an aircraft registered in the Relevant Jurisdiction and operated/leased by a company incorporated or registered in the Relevant Jurisdiction?

No.

9.6.2 Making available a lease facility to a company incorporated or regulated in the Relevant Jurisdiction?

No.

9.6.3 Receiving rent and other lease payments under the Lease from the lessee incorporated or registered in the Relevant Jurisdiction?

No, except the taxes mentioned above in Section 9.1.

9.6.4 Repossessing the aircraft and exporting the aircraft from the Relevant Jurisdiction?

No.

9.6.5 Selling the aircraft at a profit, whether such sale is after repossession or is subject to the Lease and the lessee’s rights?

No.


10. EXCHANGE CONTROLS

10.1 Are payments to foreign owners by companies incorporated or registered in the Relevant Jurisdiction subject to any form of exchange or similar control?

Yes, there is exchange control regime in the Relevant Jurisdiction. Relevant contracts and invoices shall be provided for review to the bank which copes with the company’s application for payment. If the amount of a single payment to the foreign Owner is over USD 50,000, an outbound payment recordal form chopped by the competent tax authorities must also be provided to the bank for review.

10.2 If yes, can any consents, authorisations or licences be obtained to exempt payments from any such control? How would these be obtained? Are such consents, authorisations or licences transferable?

No consents, authorisations or licences can exempt payments from any such exchange control.


11. INSURANCE

It is a legal requirement that adequate insurance will be maintained. 

11.2 If so, is there any restriction on reinsurance of the primary insurance outside the Relevant Jurisdiction?

Reinsurance of the primary insurance outside the Relevant Jurisdiction is not allowed by the PRC law. However, a branch of a foreign reinsurance company is allowed to carry out reinsurance business in the PRC.

11.3 Is there a minimum percentage of cover which a local insurer is obliged to retain, and if so, what is it?

Where any direct property insurance business is ceded in the manner of proportional reinsurance, the proportion of business ceded to a reinsurer for each risk unit shall not exceed 80% of the insured amount or the limit of liability in the direct insurance contract underwritten by the cedant.

11.4 Is it possible for local insurers to assign contracts of reinsurance? If not, is a cut-through clause enforceable?

It is possible for an insurer in the Relevant Jurisdiction to assign a contract of reinsurance. 


12. LIABILITY FOR DAMAGE

Can the Owner be strictly liable – liable without a requirement to prove fault or negligence – for any damage or loss caused by the Aircraft assuming Owner is an innocent owner with no operational control of the Aircraft?

For the loss and damage caused by an aircraft to third parties, the operator (the entity which was making use of the aircraft at the time the damage was caused) of the civil aircraft shall undertake the liability for compensation. The registered person in possession of the Aircraft shall be considered as the operator and shall be liable for the damages, unless it can prove that some other person was the actual operator in the proceedings and take appropriate measures to make that other person a party in the proceedings. I.e. if the Owner is an innocent owner with no operational control of the Aircraft, it shall be the actual operator who is liable for the damages or losses.  


13. DETENTION/CONFISCATION

13.1 Are there any rights to detain or sell the Aircraft pursuant to drug trafficking, tax or other laws or pursuant to rights of airport or air navigation authorities if the Airline fails to pay when due? 

If the Aircraft is used to commit a criminal offence, it may be temporarily seized in criminal proceedings. Further, if the Airline fails to pay the fees to the airport, the latter is entitled to asset a lien over the Aircraft.

13.2 If so, can the Aircraft be forfeited and sold without the Owner being made aware?

No.


14. SOVEREIGN IMMUNITY

14.1 Is any Airline based in the Relevant Jurisdiction entitled to any form of sovereign or other immunity from suit which might restrict the Owner’s rights under the Lease?

No.

14.2 Can such immunity be validly waived in advance by contract?

Not applicable.


15. DISPUTE RESOLUTION AND RECIPROCAL ENFORCEMENT

15.1 Do the laws of the Relevant Jurisdiction permit and recognise an “asymmetric” submission to jurisdiction clause under which the lessee submits to the exclusive jurisdiction of the Courts of England but the Owner has discretion to choose a jurisdiction other than the Courts of England?

No. The laws of PRC do not permit and recognize the described “asymmetric” submission clause.

15.2 If the Lease is governed by English Law and a judgment is obtained by the Owner in the English courts, can that judgment be automatically enforced in the Relevant Jurisdiction or will the case have to be re-examined on its merits? If so what procedures must be complied with to enforce such a judgement?

According to the PRC Civil Procedure Law, a Chinese court may only recognize and enforce the judgment or ruling of a foreign court on the basis of international treaties concluded or acceded by China, or in accordance with the principle of reciprocity. Up till now, China has not yet acceded to the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Criminal Matters. We did not notice that there is bilateral treaty between UK and China regarding recognition and enforcement of court decision on civil matters either.

In respect of the principle of reciprocity, we do not know whether any England courts have already acknowledged the principle of reciprocity regarding the judgments of Chinese courts. Even if there are such precedent cases, there is no assurance that the Chinese court will recognize and enforce an England court decision. In other words, we consider that an England court decision will not be recognized and enforced by the court in China.

15.3 Is the Relevant Jurisdiction party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) or the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the Washington Convention)? Will the courts of the Relevant Jurisdiction recognise and enforce a decision of an arbitrator?

PRC is a party to the New York Convention and will recognise and enforce a decision of an arbitrator. However, in its Declaration of Accession, China made a reciprocity reservation, as a result of which China is only obliged to recognize and enforce awards made in the territory of another contracting state of the New York Convention.  Further, PRC is a party to the Washington Convention.

15.4 What is the usual choice of dispute resolution in international supply contracts involving a lessor or buyer incorporated in or with its main place of business in the Relevant Jurisdiction?

Dispute resolution choices vary from company to company. In practice, the parties of an international aircraft lease agreements may choose to submit the disputes to the ICC for arbitration.


16. AIRCRAFT ENGINES

16.1 If the equipment being leased to the Airline in the Relevant Jurisdiction was an Aircraft Engine either unattached to an airframe or attached to an airframe belonging to a party other than the Aircraft Engine Owner and being leased to the Airline under a separate engine lease agreement, would there be any significant changes to the responses set out above?

See 16.2 and 16.3. Subject to 16.2 and 16.3 generally, no significant changes are required in relation to Aircraft Engines.

16.2 In particular, does the Relevant Jurisdiction recognise the separate ownership of the Aircraft Engine by the Aircraft Engine Owner when the Aircraft Engine is attached to an airframe belonging to a person other than the Aircraft Engine Owner?

Except as expressly conferred by the Lease Agreement, the PRC law does not provide that an Engine installed on an aircraft is owned by the owner of the Aircraft.  We think the lessor would remain the owner of the Engine throughout the duration of the lease term except as expressly conferred by the Lease Agreement.

16.3 Is there a register of Aircraft Engines and is the information given above in relation to registration of Aircraft and the ownership and leasing of Aircraft the same for registration of an Aircraft Engine and the ownership and leasing of such Aircraft Engine at the Aircraft Engine register?

There is no separate register in the PRC for Aircraft Engines.


17. ADDITIONAL INFORMATION – IS THERE ANYTHING ELSE WE SHOULD HAVE ASKED?

No.