On 2 November 2018, Hong Kong published Inland Revenue (Amendment) (No. 7) Ordinance 2018, which provides for the implementation of the enhanced tax deduction for expenditures incurred by enterprises on research and development (R&D) activities in Hong Kong. The Ordinance provides that R&D expenditures are classified as either:
The enhanced tax deduction for Type B expenditures is a two-tier deduction regime, which includes a 300% deduction for the first HKD 2 million of the aggregate amount of payments made to designated local research institutions for qualifying R&D activities and expenditures incurred by the enterprises for in-house qualifying R&D, and a 200% deduction for the remaining amount. There is no cap on the amount of enhanced tax deduction.
The enhanced deduction is available for qualifying R&D expenditures incurred by enterprises on or after 1 April 2018.
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