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Hong Kong Corporate - Significant developments

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New legislation enacted

The following pieces of legislation were enacted in the past 12 months:

  • Open-ended Fund Company (OFC) tax regime: Inland Revenue (Amendment) (No. 2) Ordinance 2018, which extends the profits tax exemption to onshore privately held OFCs, came into operation on 30 July 2018 (except for the provision to include over-the-counter derivative products as one of the specified assets).
  • Base Erosion and Profit Shifting (BEPS) and transfer pricing (TP) law in Hong Kong: Inland Revenue (Amendment) (No. 6) Ordinance 2018, which introduces a TP regulatory regime and TP documentation requirements in Hong Kong, was enacted on 13 July 2018. The Ordinance also implements the various minimum standards under the Organisation for Economic Co-operation and Development (OCD)’s BEPS Action Plan in Hong Kong. Different effective dates apply to different provisions in the Ordinance.
  • Tax deduction for capital expenditure on three more types of specified intellectual property (IP) rights: Inland Revenue (Amendment) (No. 5) Ordinance 2018 was enacted on 29 June 2018. The Ordinance contains provisions on (1) granting profits tax deduction for capital expenditure incurred on protected layout-design (topography) rights, protected plant variety rights and performer’s economic rights (applicable from the year of assessment 2018/19); (2) deeming certain sums received in connection with the additional IP rights as taxable trading receipts (applicable to sums received or accrued on or after 29 June 2018) and (3) anti-avoidance measures for the tax deduction (applicable from 29 June 2018).
  • Profits tax exemption for offshore funds participating in the Innovation and Technology Venture Fund (ITVF) Scheme: Inland Revenue Ordinance (Amendment of Schedule 16) Notice 2018 came into operation on 22 June 2018. To address the tainting concern of offshore venture capital funds for investing in a Hong Kong start-up under the ITVF Scheme of the Hong Kong SAR Government, the Notice adds "a transaction in an investee company that is co-invested by a non-resident fund and the Innovation and Technology Venture Fund Corporation" as one of the tax-exempt specified transactions in the IRO.
  • 2017/18 Tax reduction and other tax measures proposed in the 2018/19 Budget: Inland Revenue (Amendment) (No.4) Ordinance 2018 was enacted on 25 May 2018. It gives effect to the various tax measures proposed in the 2018/19 Budget, including the 75% reduction of salaries tax, profits tax, and tax under personal assessment for the year of assessment 2017/18 with a cap of 30,000 Hong Kong dollars (HKD).
  • Two-tier profits tax rates: Inland Revenue (Amendment) (No.3) Ordinance 2018, which implements the two-tier profits tax rates in Hong Kong, was gazetted on 29 March 2018. Effective from the year of assessment 2018/19, the first 2 million HKD of assessable profits of corporations and unincorporated businesses, resident or otherwise, will generally be taxed at 8.25% and 7.5%, respectively. The remaining assessable profits will be subject to the normal tax rate at 16.5% and 15% for corporations and unincorporated business, respectively. As an anti-avoidance measure, a group of ‘connected entities’ can only nominate one entity within the group to enjoy the reduced tax rate for a given year of assessment.
  • Increase in stamp duty on certain transactions: Stamp Duty (Amendment) Ordinance 2018 was gazetted on 19 January 2018. It increases the stamp duty rate on transfer of Hong Kong residential properties to a flat rate of 15%, with certain exemptions. One common exemption is the acquisition of residential property by a Hong Kong permanent resident who does not own any residential property at the time of acquisition. In this case, the applicable stamp duty ranges from a fixed amount of HKD 100 (for property consideration of up to HKD 2 million) to 4.25% of the consideration (for property consideration exceeding HKD 20 million). The 15% flat rate applies retrospectively from 5 November 2016, unless specifically exempted or provided otherwise.
  • Close the loophole in stamp duty: Stamp Duty (Amendment) (No. 2) Ordinance 2018 was gazetted on 20 April 2018. It tightens the situation where the 15% flat rate is not applicable. Pursuant to the Ordinance, unless specifically exempted or otherwise provided, any instrument executed on or after 12 April 2017 for acquisition of more than one residential property under that instrument will be subject to stamp duty at a flat rate of 15%, even if the acquirer is a Hong Kong permanent resident who does not own any residential property in Hong Kong at the time of acquiring the multiple residential properties.

Last Reviewed - 27 June 2018

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