Hong Kong Financial Secretary Paul Chan maintained the existing rates of profits tax and salaries tax in the 2021/22 Hong Kong Budget on 24 February 2021, but extended the special Covid-related reductions.
“As businesses and individuals are generally under considerable financial pressure amid the prevailing economic environment and the epidemic, I consider that it is not the appropriate time to revise the rates of profits tax and salaries tax, which are our major sources of revenue,” said Chan. “Nevertheless, we will keep in view the situation and make adjustments at the appropriate time.”
The 100% reduction of profits tax will be extended to the 2020-21 year of assessment subject to a ceiling of HK$10,000, which is half of the eligible 2019/20 reduction. This will benefit 128,000 businesses and reduce government revenue by HK$1.05 billion.
The 100% reduction of salaries tax and tax under personal assessment will also be extended for another year, but the ceiling has been reduced from HK$20,000 to HK$10,000 for the 2020/21 financial year. This will benefit 1.87 million taxpayers and reduce government revenue by HK$11.4 billion.
The government is also to waive business registration fees for 2021/22, which will benefit 1.5 million business operators and reduce government revenue by HK$3 billion.
To offset this revenue, the government proposes to raise the stamp duty on equity transactions by 30% such that duty on stocks will rise from 0.1% to 0.13%, as of 1 August.
Chan did announce some tax reliefs for businesses operating in Hong Kong, including tax concessions for carried interest issued by private equity (PE) funds and a half-rate profits tax concession for eligible insurance businesses, including marine insurance and specialty insurance.
To further incentivise PE fund managers to select Hong Kong as a location of domicile and operation of funds, Hong Kong introduced a bill in January 2021 which exempts eligible carried interest, arising from in-scope transactions received by qualifying recipients for the provision of investment management services to qualifying payers, from tax in Hong Kong.
Subject to the passage of the bill by the Legislative Council, the above concessionary tax treatment will apply retrospectively and will be applied to eligible carried interest received by or accrued to a qualifying recipient on or after 1 April 2020.
On research and development, the government announced plans to inject HK$4.75 billion per year into the Innovation & Technology Fund for two years to sustain its 17 funding schemes and over 50 R&D laboratories for the next three years.
To support startups, the government-owned Hong Kong Science & Technology Parks Corporation and Cyberport will inject HK$350 million and HK$200 million into their existing Corporate Venture Fund and Cyberport Macro Fund respectively, and extend the scope to cover Series B and later-stage investments.
On the digital economy, the government will allocate HK$375 million to the Hong Kong Trade Development Council in the coming three years to develop virtual platforms to enhance its capability to organise online activities and to proceed with digitalisation.
The Financial Secretary said the government intended to expand the Special Administrative Regions’s trade, investment and tax agreement networks, and was also committed to the OECD’s efforts to find an international agreement on taxing the digitalisation of the economy.
Now that the free trade agreement and the investment agreement between Hong Kong SAR and the Association of Southeast Asian Nations (ASEAN) has entered into effect, the government has turned itss efforts to the Regional Comprehensive Economic Partnership (RCEP) agreement among 15 economies.
“We are actively seeking to be among the first batch of economies joining the RCEP after it comes into effect, so as to help Hong Kong businesses and investors open up markets, thereby fostering the long-term economic development of Hong Kong,” said Chan.