Hong Kong Plans Two-Tier Profit Tax System

In her first policy address as Chief Executive on October 11th, Carrie Lam pledged to go through with what would be Hong Kong’s largest profit tax reform in decades. Here is the “what, when, and why” of this potentially game-changing initiative.

Profit tax : What?

The proposal calls for the introduction of a two-tier profit tax system that would lower the tax burden for small and medium sized enterprises (SMEs) in Hong Kong.

The tax rate for the first HK$2 million of profits would be halved from the current 16.5 percent to 8.25 percent.

One enterprise group may only nominate one entity to benefit from the tax reduction. An additional proposal to grant a 300 percent tax deduction for the first $2 million in eligible R&D expenditure, and a 200 percent deduction for the remainder, was also announced.

hong kong profit tax

Profit tax in Hong-Kong : When?

A bill containing both tax measures will be submitted to the Legislative Council and is likely to be passed by early 2018, at the latest.

HK profit tax rate: Why?

A tiered tax system is expected to attract new companies to set up in the city. It would particularly help advance the government’s plans to turn Hong Kong into a hub for innovation and high-tech start-ups.

The reform would help boost Hong Kong’s overall appeal and regional competitiveness as a business location by adding to the several advantages the city already offers.

Please get in touch with us at contact@fiducia-china.com if you wish to receive updates on this initiative as it unfolds. Our consultants will be glad to discuss this and other administrative, financial, or strategic aspects of your Hong Kong business with you.

This News Brief, originally published in August, 2017, has been updated based on Chief Executive Carrie Lam’s announcement on October 11th, 2017.