Tag Archives: Hong Kong Profits Tax

Hong Kong Profits Tax – Two-Tier Profits Tax Rate Comes Into Effect on 1 April 2018

On 29 March 2018, the  Inland Revenue (Amendment) (No. 3) Ordinance 2018 (“the Ordinance”) was gazetted to implement the two-tiered profits tax rates regime announced in the 2017 Policy Address by Ms. Carrie Lam, the Chief Executive of HK SAR.

The new two-tier profits tax structure will be effective to any year of assessment commencing on or after 1 April 2018

  • The profits tax rate for the first HK$2 million of profits of corporations will be lowered to 8.25%.  Profits above that amount will continue to be subject to the tax rate of 16.5%
  •  For unincorporated businesses (i.e. partnerships and sole proprietorships), the two-tiered tax rates will correspondingly be set at 7.5% and 15% 

The above two-tiered profits tax rates regime is implemented to benefit the most to the small and medium enterprises (SMEs).  Large corporations should not that the regime is restricted to only one enterprise nominated among connected entities.

A Comparison of the Effective Tax Rate between Singapore and Hong Kong

Let’s do a comparison between Hong Kong and Singapore based on the scenario of a company having an assessable profit of HKD3,000,000 (or SGD500,000).

Effective tax rate if the company is incorporated in Hong Kong – 11%
Effective tax rate if the company is incorporated in Singapore – 12% (and this will be increased to 14% as a result of the revision of the Partial Tax Exemption Scheme).

Our comments:  Although Taxation is never the only factor for a company to consider the location of setting up the business, it certainly becomes slightly more attractive for the business to be set up in Hong Kong from an effective rate perspective unless the same business can obtain more tax breaks or reliefs from a Singapore tax perspective.  The Singapore Government has to work harder on this to maintain its competitiveness with Hong Kong.

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Proposed Tax Changes announced by Mrs Carrie Lam, Chief Executive of HK SAR on 11 Oct 2017

Hong Kong Chief Executive, Mrs Carrie Lam, delivered her maiden Policy Address a while ago and the following tax changes have been proposed:

– To provide tax relief to the SMEs, the profits tax rate for the first HK$2M of profits to be lowered to 8.25% and thereafter the profits exceeding that amount would continue to be subject to HK Profits Tax at 16.5%. Only one enterprise nominated by each business group will be eligible for the lower tax rate.

– To encourage R&D investment by enterprises, a 300% tax deduction for the first HK$2M eligible R&D expenditure is proposed, with the remainder at 200%

– Increase the total number of comprehensive avoidance of double taxation agreements to be signed with other tax jurisdictions to 50 in the next few years.