As global tax rates continue to fall, tax policy is at the
forefront to drive Hong Kong's economic growth. In recent
years, the Hong Kong government has introduced various
initiatives to bolster Hong Kong's position as a global
Aircraft leasing regime
A new tax incentive for aircraft leasing was introduced in
July 2017 to enhance Hong Kong as a centre for aircraft
leasing. The main benefits of the aircraft leasing concessions
- An effective tax rate of 1.65% will be
levied on profits earned by 'qualifying aircraft
- A concessional 8.25% tax rate will apply
to profits from 'qualifying aircraft leasing management'
To benefit from these tax concessions, 'qualifying aircraft
lessors' and 'qualifying aircraft leasing managers' must not be
aircraft operators and must only conduct qualifying activities.
In October 2017, the Inland Revenue Department (IRD) issued
DIPN 54 to clarify various tax issues concerning the
application of the new concessionary tax regime.
BEPS and transfer pricing
As part of Hong Kong's commitment and participation in the
OECD's BEPS project, the Hong Kong government will introduce
comprehensive transfer pricing rules as well as a transfer
pricing documentation regime. The new transfer pricing rules
will be largely based on the OECD's transfer pricing guidelines
and will likely be introduced in early 2018.
In addition, on June 7 2017, with 67 other jurisdictions,
Hong Kong joined the Multilateral Instrument (MLI) where Hong
Kong submitted a list of 36 comprehensive double tax agreements
(DTAs) that it designated as its covered tax agreements through
the MLI mechanism.
Offshore PE funds tax exemption and open-ended fund
The most significant legislative change affecting the funds
industry has been the extension of the offshore fund tax
exemption to private equity (PE) funds in July 2015 (offshore
PE fund tax exemption) to exempt offshore PE funds from tax in
Hong Kong in respect of investments outside of Hong Kong.
Given the important role that PE funds play in raising
capital for businesses, further proposals have been made by the
Financial Services Development Council to enhance its tax
initiatives to make them more business-friendly and favourable
to the PE and venture capital industry. This includes extending
the offshore PE funds tax exemption to cover in investments in
Hong Kong businesses and onshore privately offered open-ended
fund companies (OFCs). On June 28 2017, a bill was introduced
to provide a tax exemption to OFCs. This is another government
initiative to attract more funds to domicile in Hong Kong.
Future developments in 2018
Hong Kong's new chief executive has signalled that tax
reform will be a priority. Some of the new tax policy
initiatives that have been announced, include:
- A two-tier profits tax rate – the
first HK$2 million of profits of a group will be taxed at
8.25% (with the remainder subject to tax at 16.5%); and
- A super deduction for research and
development expenditure – a 300% deduction will
apply for the first HK$2 million of such expenditure, and
Going forward, Hong Kong needs to ensure its tax rules align
with international tax rules in order to continue to make Hong
Kong an attractive place to establish new businesses.
Lewis Lu (email@example.com) and
Curtis Ng (firstname.lastname@example.org)
Tel: +86 (21) 2212 3421