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Hong Kong

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Hong Kong Legislative Council Passes Bill for Two-Tiered Profits Tax

On 21 March 2018, the Hong Kong Legislative Council passed the Inland Revenue (Amendment) (No. 7) Bill 2017 in its third reading. As passed, the bill provides for the introduction of a two-tiered profits tax rate regime for corporations and unincorporated businesses for any year of assessment commencing on or after 1 April 2018 as follows:

  • Assessable profits up to HKD 2 million - 8.25% for corporations and 7.5% for unincorporated businesses;
  • Assessable profits beyond HKD 2 million - 16.5% for corporations and 15.0% for unincorporated businesses (same as current rates).

In order to avoid double benefits, the following are excluded from the two-tiered profits tax rate regime:

  • Those enterprises electing the preferential half-rate tax regimes (e.g. professional reinsurance companies, captive insurance companies, corporate treasury centres, and aircraft leasing companies); and
  • The assessable profits for sums received by or accrued to holders of qualifying debt instruments as interest, gain, or profit that is already taxed at a half-rate (such profits continue to be subject to the current applicable tax rates, i.e. 8.25% or 7.5%, as the case may be, and are not included in determining the HKD 2 million assessable profits threshold for the lower rate of the two-tiered regime).

To ensure that the tax benefits will target SMEs, a restriction is included that limits the application of the two-tiered regime to only one enterprise nominated from among those that are connected (under the control of the same enterprise or entity – more than 50%).

It is expected that the bill will be converted into law on 29 March 2018.

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