Regulatory Updates

February, 2023: Hong Kong Budget Highlights – 2023-2024

Hong Kong Budget 2023-24 – Highlights

The Finance Secretary of Hong Kong, Paul Chan, presented the budget for the year 2023–24 on February 22, 2023. Hong Kong experienced a slowdown in 2022 with the economy contracting by 3.5%, however, due to labor market improvements, the unemployment rate has been reduced from 5.4% early last year to 3.4% today.  Moreover, the budget forecasts the Hong Kong economy to grow at 3.5% to 5.5% during 2023, with inflation expected to be around 2.5%.

The key proposals of the Budget 2023-24 are as follows:

For Companies

  • There are no changes proposed in the corporate income tax (Profit Tax) rates, however, the Budget proposes a reduction of 100% profit tax for the tax year 2022–23 with a ceiling of HKD 6,000 (similar reduction was granted for the tax year 2021–22 but with a higher ceiling of HKD 10,000).  The reduction will be reflected in the final tax assessment for the tax year 2022–23.
  • Last year, the Copyright (Amendment) Ordinance 2022 was legislated and will come into force on May 1, 2023. Further, the Government plans to introduce the necessary legislation to put into effect the Madrid Agreement in the first half of this year. This will enable trademark owners to register and protect their trademarks in multiple countries by filing a single application with their own national or regional trademark office.
  • In order to encourage innovation in the technology sector and encourage more research and development (R&D) the Government plans to introduce a “patent box” tax incentive that will give tax concession on profits earned in Hong Kong from qualifying patents generated through R&D activities. The Government proposes to consult the stakeholders on this and submit legislative amendments in the first half of the year 2024.
  • In Hong Kong, both the employer, and the employee are mandated to contribute to Mandatory Provident Fund (MPF) for employees aged 18 to 64, and they can claim tax deductions accordingly. Employers can also claim deductions on voluntary MPF contributions subject to the ceiling. In order to encourage employers to hire elderly employees, the budget proposes to an increase in the tax deduction from 100% to 200% for voluntary contributions made by employers to the Mandatory Provident Fund (MPF) for employees aged 65 or above.
  • The Government will launch consultation exercise on the proposal to introduce global minimum taxes on large MNEs in line with OECD BEPS tax reform proposals. As per OECD proposals, a global minimum effective tax rate of 15 per cent will be introduced on large multinational enterprise (MNE) groups with global turnover of at least EUR 750 million. Hong Kong plans to implement such tax in 2025.
  • The Government is also considering the introduction of an enhancement proposal mid-March to provide clearer guidelines on whether onshore gains on disposal of equity interest are subject to tax in Hong Kong.
  • The Government, after consultation, will submit a legislative proposal in the tax year 2023–24 to introduce a mechanism to provide incentives to companies domiciled overseas for relocating to Hong Kong, particularly for companies having a business focus on Asia pacific.

For Individuals

  • There are no changes proposed in individual tax slabs and rates in the budget. However, the budget proposes a 100% reduction of “salaries tax” and “tax under personal assessment” up to a ceiling of HKD 6,000 for the tax year 2022–23 (similar reduction was provided earlier with ceiling of HKD10,000 for tax year 2021-22). This will be reflected in the final tax payable for the tax year 2022-23.
  • The Budget proposed an increase of the basic child allowance and an additional child allowance for each child born during the tax year 2023–24 from the current HKD 120,000 to HKD 130,000. Child allowances are deductions from the taxable salary for each child up to the ninth child, which getss doubled in the year of childbirth.

Other Proposals

  • The Budget proposes to increase duty on cigarettes by 60 cents per stick with immediate effect. Increase in the same proportion will be made on other tobacco products as well.
  • Under the property tax regulations (known as ‘Rating system’), a property tax (‘rate’) is payable at a specified percentage of the assessed rateable value of the property. The Government grant rates concession on annual basis considering the prevailing circumstances. The Budget proposes a rate concession for domestic and non-domestic (including offices) properties for the first two quarters of the tax year 2023–2024, subject to a ceiling of HKD 1,000 per quarter. This will reduce the property tax outgo for domestic as well as non-domestic users.
  • Starting in July 2023, the Government will grant 50% (earlier 75%) rental or fee concessions to eligible tenants of Government properties and short-term tenancies and waivers (temporarily relaxations on the restriction(s) put on using the building) under the Lands Department for the period of six (6) months until December 2023.
  • The Budget proposes to extend the SME Financing Guarantee Scheme (SFGS) from June 2023 to March 2024 to reduce the financial strain on small and medium-sized firms (SMEs).

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