How leasing models are reshaping maritime funding

Ship financing has traditionally been provided by banks, with those in Europe and the US the most active in providing shipowners with credit facilities. After the financial crisis of 2008, they reduced their exposure to the shipping sector due to the strict regulations imposed by Basel III, increasing capital costs and low returns. US private equity firms then saw an opportunity to invest in the market but have since reduced their engagement. Although leasing structures have existed for decades, Asian lessors in particular have taken advantage of these market changes to fill the gap with leasing solutions tailored to the needs of modern shipping companies.
The emerge and rise of APAC leasing models
Leasing models provide an effective, efficient and convenient way of getting funding. Chinese and Japanese financial institutions are leveraging their strong capital bases and strategic initiatives to expand their influence globally by offering higher loan-to-value ratios and longer amortisation periods than traditional banks. Both Chinese leasing and Japanese operating leases with call option structures (“JOLCOs”) provide tax benefits that contribute to the reduction of the overall cost of financing. The IMO’s Green House Gas strategy, and decarbonisation efforts more generally, are also driving the leasing business. As leasing is often linked to newbuilding projects, environmentally friendly vessels are increasingly being financed through leasing structures.
Chinese Leasing
A typical Chinese sale and lease back is a financial arrangement where a shipping company sells a vessel to a financial institution and then leases it back for operational use.
Chinese leasing structures typically involve the sale of a vessel to a financial institution, which then leases it back to the original owner for operational use. In such arrangements, the leasing company assumes legal ownership of the vessel, while lease terms are generally flexible, ranging from 5 to 15 years depending on the ship type and prevailing market conditions. Many of these leasing firms, particularly state-owned entities, align their financing strategies with national initiatives such as China’s Belt and Road Initiative (BRI), reinforcing their broader geopolitical and economic objectives.
These models offer several advantages. Chinese lessors are known for providing competitive pricing compared to traditional Western banks, along with more adaptable lease terms and repayment structures. Their significant capital reserves enable them to support large-scale financing deals, including the construction of new vessels—a boost for both shipowners and shipyards. Additionally, state backing often results in favourable conditions for borrowers.
However, there are notable drawbacks. The shift in legal ownership can reduce the lessee’s control over the vessel. The structures themselves are complex, often necessitating detailed legal and financial guidance. Regulatory unpredictability in China presents further risk, and some lessors—particularly newer entrants—may still be building the necessary maritime expertise.
Japanese Operating Lease with Call Option
Japanese leasing companies have also continued to grow their market share through the tax effective JOLCO structure. JOLCOs are based on the same fundamental concepts as conventional sale and leaseback but have additional provisions to meet Japanese tax law requirements.
A JOLCO involves a “registered owner,” usually incorporated in a shipping-friendly jurisdiction such as the Marshall Islands. This entity purchases the vessel from the shipowner and sells beneficial ownership to one or more Japanese special purpose vehicles (SPVs). The Japanese SPV then charters the vessel back to the shipowner’s group, allowing the registered owner to remain the legal owner whilst the Japanese SPV claims the relevant tax benefits.
Differing from  usual sale and lease back structures, JOLCOs provide up to 100 percent financing for the vessel, typically split into 70 percent debt and 30 percent equity. Funding is usually provided by loans from the Japanese SPV and investment from Japanese investors. Such investment is made through agreements into a limited partnership structure that is transparent for tax purposes, allowing those investors to share in the losses of the Japanese SPV. As usual, the vessel is bareboat chartered back to the shipowner, allowing existing chartering and management arrangements to continue. However, lease payments do not cover the capital costs of the asset leaving the residual value risk with the Japanese special purpose vehicle.
As with a Chinese leasing structure, the bareboat charter in a JOLCO includes a purchase option for the lessee to repurchase the vessel by paying off the debt and equity investment.
Recent regulatory changes in Japan have limited JOLCO eligibility to “advanced vessels” that meet specific environmental and technological criteria. This aligns JOLCOs with global decarbonisation efforts and encourages investment in green ship technology.
Japanese Operating Lease with Call Option (JOLCO) structures are a long-established and tax-efficient financing model widely used in ship finance. These arrangements are typically funded by Japanese institutional investors who benefit from local tax incentives. Under a JOLCO, the vessel is legally owned by a special purpose vehicle (SPV), while the shipowner operates the vessel under a bareboat lease. At the end of the lease term—usually between seven and twelve years—the shipowner has the option to repurchase the vessel at a pre-agreed price.
JOLCOs offer several advantages, chief among them being tax efficiency: lease payments are often treated as operating expenses, which can lower taxable income. They also allow shipowners to keep the asset off their balance sheets and are supported by a mature, well-established Japanese leasing market with deep maritime expertise.
On the downside, the structure is complex and often requires specialist legal and financial guidance. Initial setup costs tend to be higher than those of traditional financing arrangements, and access to JOLCOs may be limited, given their specialised nature and regulatory requirements.
Effects on Global Maritime Finance
The trends outlined above are accelerating the diversification of capital sources. Leasing models have assisted in shipowners’ efforts to modernise their fleets, whilst supporting the transition to the greener shipping technology. Competition worldwide has increased due to the dominance of Chinese lessors and other regions are now adopting more flexible financing solutions. Leasing has an impact on shipbuilding as it primarily supports the newbuilding market which is linked to domestic shipyards.
Registration in Germany and Tonnage Tax
It is worth to note that Chinese leasing structures usually allow for a vessel to be registered in Germany and, therefore, qualify for Germany’s tonnage tax regime. Chinese lessors regularly use single purpose companies incorporated in EU countries such as Ireland, Malta or Cyprus. 
A German flag law allows such entities to register their title in the German ship registry. On the basis of this registration, combined with the management of the vessel out of Germany, these structures generally comply with the requirements for German tonnage tax. The requirements for registration of such EU entities as legal owners differ from a standard registration so the registrars, as well as German Federal Authority that grants approval, will need to became familiar with the new structures.
Regulatory challenges in Germany
The implementation of leasing structures requires significant legal expertise to be conducted correctly. For the German market, one of the major challenges for leasing models is regulatory constraint.
Under the German Banking Act, finance leasing arrangements qualify as a provision of financial services. As a result, the lessor (unless it is already a credit institution) providing such financial services to the German market (or is targeting said market) commercially or on a scale requiring commercially organised business undertakings is subject to licensing requirements from the German Federal Financial Supervisory Authority (BaFin).
BaFin does not view all forms of leasing as finance ones requiring a license. Arrangements are categorised as a finance leasing if they are economically equal to a financing of the leased object by the lessee. This can be the case if, for example, the leasing rates throughout the term of the lease achieve the full amortisation of the acquisition costs for the leased object or if, at the end of the term, the lessee must reimburse the lessor for any remaining residual value, should the leasing payment not achieve the full amortisation. In contrast, any other type of lease or rental arrangement is not a licensed activity in Germany.
It is important to note that the German Banking Act also outlines those entities (usually regulated already elsewhere) that are not considered to be financial services providers and therefore don’t require a license to provide finance leasing in Germany. The most notable exceptions concern domestic and EU-domiciled licensed insurance undertakings and licensed German AIFMs, EU-AIFMs and AIFMs domiciled in third states which conduct only collective asset management and/or certain listed activities as per the German Capital Investment Act.
Market participants should be aware that in cases of so-called ‘reverse solicitation’ (i.e. where a lessee approaches a lessor for a finance lease), as per BaFin’s guidelines, the German market is not being targeted so a licensing requirement is not required.
Leasing service providers should carefully examine any of their leasing arrangements that have any German elements to establish to what extent they fall within German regulatory requirements which, if breached, could lead up to criminal liability for the responsible decision makers at the lessor level.
Conclusion
The APAC region is going to remain the dominant force in ship leasing for the near future. This trend provides a more versatile and competitive funding model that aligns with evolving industry needs. The market is and will keep growing due to the rising demand for cargo transportation. This is not only a reaction to the current economic environment but also a conscious effort to meet the larger objectives of innovation and sustainability in the maritime sector set by the IMO. Chinese Leasing and JOLCOs are part of a changing face of maritime finance that offer new solutions to challenges both old and new. Models such as these are set to play an increasingly important role in determining the shape of global shipping finance in the future.