The Hong Kong SAR budget for 2023-24 includes tax measures such as a patent box and one-time cuts to help the COVID-19 economic rebound.
In his budget statement today, Financial Secretary Paul Chan revealed that Hong Kong SAR will propose legislation for a 15% effective minimum corporation tax rate in the second half of 2023.
The Hong Kong administration, which is committed to the OECD's two-pillar strategy, intends to adopt the rate by 2024, according to Chan.
This is the budget's most important business tax adjustment.
The headline corporate rate in Hong Kong is 16.5%, however the minimum level of 15% means the end of substantially lower effective rates for offshore corporations. Historically, foreign enterprises in Hong Kong have been able to decrease their tax burden to zero.
The majority of the budget was allocated to help the special administrative region's economic revival. The Hong Kong economy is predicted to grow at a 5.5% annual rate this year, after slowing to 3.5% in 2022.
“I believe that Hong Kong’s economy will visibly recover this year, and I remain positive,” said Chan in his budget speech. “However, the economic recovery is still in its initial stage and there is a need for our people and businesses to regain vigour.”
Yet, the Hong Kong government is decreasing income tax and stamp duty for low-income individuals and first-time house buyers. One of these is a one-time 100% income tax relief for salaries of up to HK$6,000 per year.
In order to reduce smoking in Hong Kong, the government is also raising tobacco excise rate by 60 cents per cigarette. This change takes effect today and applies to all tobacco products.
Notwithstanding the fact that the majority of the budget is focused on consumption and personal taxation, Hong Kong is proposing many adjustments affecting corporations and investment.
The government has committed to implementing a patent box regime to give competitive tax incentives for R&D. This will apply to corporate revenues derived from Hong Kong-filed patents.
Chan stated that a details consultation will take place this year before a final plan is developed. He plans to introduce legislative changes in the first half of 2024. The administration will have time to think about how pillar two will affect the patent box regime.
Likewise, Hong Kong will finalise guidelines in March on whether capital gains from the sale of stock holdings are taxed.
"The proposal will not only promote corporate expansion and restructuring through the disposal of equity holdings, but it will also improve tax transparency, cut business compliance costs, and increase Hong Kong's competitiveness," Chan added.
Hong Kong is not lowering its corporate tax rate for large corporations, but it is providing a temporary 100% tax break for small enterprises earning less than HK$6,000 per year. Rates for corporate properties will be limited to HK$1,000 every quarter.
In addition, the Finance Guarantee Plan will continue to provide funds to Businesses. In 2022, this scheme granted HK$230 billion in finance for 53,000 enterprises. Chan has moved the funding deadline from June 2023 until March 2024.
By fLEXI tEAM