Hong Kong Review of the Year 2023

As the primary nexus for financial flows between China and the global economy, the Hong Kong SAR remains one of the
world’s most important international financial centres despite the difficulties created by the extended Covid quarantine requirements that starved it of visitors for so long.

2023 saw the government set about reviving Hong Kong’s economy through a focus on developing a vibrant ‘headquarters economy’, attracting mainland and foreign talent, retaining the competitiveness of the city against its Asian competitors, and initiating large infrastructure investment projects.

In his Policy Address in October, Hong Kong Chief Executive John Lee outlined a number of key business-related measures to attract strategic enterprises and quality talents by:

  • Developing a ‘headquarters economy’ to attract enterprises from outside Hong Kong to set up headquarters or
    corporate divisions in Hong Kong and exploring feasible measures to facilitate Chinese Mainland enterprises to
    establish in Hong Kong.
  • Encouraging companies to re-domicile to the Hong Kong SAR by introducing a re-domiciliation regime under which a company incorporated outside Hong Kong could apply to change its place of incorporation to Hong Kong while maintaining its legal identity as a corporate body, subject to certain conditions. The legislative proposals are due to be introduced in the first half of 2024.
  • Expanding the coverage of universities under the Top Talent Pass Scheme by adding eight leading institutions
    from the Chinese Mainland and overseas to the list of eligible universities.
    Hong Kong
  • Launching a Capital Investment Entrant Scheme to allow eligible investors who make investments of HKD30 million (c. USD3.85 million) or more in assets, excluding real estate, to apply for entry into Hong Kong. Further details are to be announced before the end of 2023.
  • Establishing a physical office for Hong Kong Talent Engage to formulate talent recruitment strategies and provide support for incoming talents.
  • Introduce a Multiple-entry Visa to the Mainland for foreigners working in companies registered in Hong Kong.
  • Establish a ‘Vocational Professionals Admission Scheme’ to enable eligible participants to stay in Hong Kong for one year after graduation to seek jobs.

Also in October, the Hong Kong government gazetted the Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Bill 2023, which further refines Hong Kong’s foreign-sourced income exemption (FSIE) in line with the latest requirements of the EU’s Guidance on FSIE regimes.

Under the refined FSIE Regime, the scope of property in relation to foreign-sourced disposal gains will be expanded to cover all types of property. A new intra-group relief will also be introduced for property transfers between associated entities, subject to specific anti-abuse rules, in addition to the existing exception requirements on disposal gains.

The legislation was to be implemented effectively from 1 January 2024, which should ensure Hong Kong’s removal from the EU’s Annex II of non-cooperative jurisdictions for tax purposes. Hong Kong was kept on the EU ‘grey list’ when it was reviewed last February, pending completion of the necessary legislative amendments.

In September, Hong Kong’s Commerce & Economic Development Bureau issued a consultation paper on the ’Introduction of a Patent Box Tax Initiative in Hong Kong’, which set out proposals for a concessionary tax regime for Hong Kong-sourced intellectual property (IP) income to encourage businesses in Hong Kong to engage in more research and development (R&D) and IP trading activities.

The consultation paper proposes that the scope of eligible IP assets will include:

  • Patents and other IP assets that hold functional equivalence to patents – they must be protected by law and subject to comparable registration and approval procedures.
  • Copyrighted software.
  • Plant variety rights (which give plant breeders exclusive rights to produce, sell, import and export new, protected varieties).

The preferential tax rate for the patent box regime is still under consideration. A concessionary tax rate of 8.25% applies under the majority of the various preferential tax regimes currently available in Hong Kong SAR, but the government said it would also consider preferential tax rates available under competing patent box regimes in other jurisdictions.

Hong Kong is currently brimming with infrastructure projects. The Northern Metropolis Development Strategy is a
development of 30,000 hectares of land in the northern part of the New Territories, which includes five new and extended railway lines including cross-boundary projects, connecting the Northern Metropolis with other areas in Hong Kong and mainland China.

The aim is to drive Hong Kong’s economic growth through cooperation and integration with the Greater Bay Area (GBA). In the 2022-23 Budget, the government allocated HKD100 billion to expedite the implementation of infrastructure works relating to land, housing and transportation within the Northern Metropolis.

Another megaproject, the Lantau Tomorrow Vision (LTV) is the phased formation of artificial islands around Kau Yi Chau and Hei Ling Chau in the waters east of Lantau Island. This land reclamation will be accompanied by new strategic road and railway networks to link it with Hong Kong Island, Lantau, and the coastal areas of Tuen Mun. It is expected to cost USD80 billion and includes the development of 1,700 hectares of artificial islands with 260,000 to 400,000 housing units.

Alan Fong, Managing Director of Sovereign Trust (Hong Kong) Limited commented, “As we approach the Chinese New Year (10 Feb 2024) and enter into the Year of the Dragon, there are expectations that Hong Kong’s economy will continue to thrive and build on the efforts made by the Government in the past year. The dragon is the ultimate symbol of power, fortune and prosperity in Chinese culture, and for many, this year will be special and auspicious. Besides the economy, Hong Kong sees the return of large-scale events covering sports and cultural arts that includes the Rugby Sevens and Art Basel, which will help to increase the number of visitors to Hong Kong and bring a
welcome boost to the tourism industry”.

The highlight for me during the past year was being able to meet clients and business partners in person; discussing exciting projects and exploring the many opportunities that exist in not only Hong Kong or China, but Asia in general.

In summary, Hong Kong is a unique city, which brings a blend of Chinese and Western cultures and it remains key, both as an international finance centre and as the gateway to China. There are evident signs of recovery with renewed optimism and vigour as the Hong Kong economy bounces back with the support of the Government and international community. These are exciting

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