All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Hong Kong: Hong Kong’s 2019/20 budget highlights

intl-updates-small.jpg

The Financial Secretary Paul Chan announced the 2019/20 Hong Kong budget on February 27 2019, outlining the government's plan for the economy and its proposals for changes to taxation.

Chan forecasts a healthy surplus of HK$58.7 billion ($7.4 billion) for 2018-19. Overall, the government expects to have fiscal reserves of HK$1,161.6 billion by March 31 2019, in addition to maintaining this solid position over the next five years.

As expected, livelihood issues were a main focus, and included tax rebates and targeted welfare measures. Most sectors have benefited in some way from the budget, with the financial services sector and the innovation and technology industry as the biggest winners.

That said, education is the single largest area of government expenditure, and should perhaps have received greater attention. In a recent KPMG survey on smart cities, key priorities that respondents identified included strengthening education and developing a future-focused workforce.

The following tax changes were implemented:

  • A reduction of 75% in profits tax payable for 2018/19, subject to a ceiling of HK$20,000;

  • Continued commitment to enhance tax concessions related to qualifying corporate treasury centres;

  • Consider establishing a limited partnership regime and introducing tax arrangements to attract private equity funds to set up and operate in Hong Kong;

  • Provide a 50% tax concession to marine insurance business; and

  • Consider introducing tax and related measures to attract ship finance companies to develop ship financing businesses in Hong Kong.

Country-by-country reporting

The most significant change to Hong Kong tax law was the introduction of a transfer pricing (TP) ordinance in mid-2018 which formally codified TP rules and three-tiered TP documentation requirements. An important requirement under new TP rules is that certain Hong Kong companies will be subject to country-by-country reporting (CbCR) requirements.

For CbCR, there are broadly three key steps that apply to multinational enterprise (MNE) groups whose annual consolidated group revenue reaches the specified threshold amount of €750 million ($848 million):

  • CbC notification by at least one Hong Kong company within a reportable group;

  • Completion of a new profits tax return (Form BIR51) and supplementary form (Form S2); and

  • Where applicable, filing a CbC return and a CbC report.

CbC notifications

A CbC notification must be filed by a Hong Kong entity within a reportable group. A MNE group is a reportable group if it had a total consolidated group revenue of at least HK$6.8 billion for the immediately preceding accounting period where the MNE group's ultimate parent entity (UPE) is resident in Hong Kong. For MNE groups whose UPE is resident outside Hong Kong, the threshold amount refers to the threshold specified by the UPE's jurisdiction or, in any other case, is an amount equivalent to €750 million threshold as at January 2015.

A Hong Kong entity of a reportable group must file a written notice with the Inland Revenue Department (IRD) to identify the UPE or the constituent entity responsible for filing the CbC report unless:

  • It is not the Hong Kong UPE of the group, the group's surrogate parent entity (SPE) resident for tax purposes in Hong Kong, nor the authorised entity to file a CbC return for the group; and

  • By the notification deadline, another Hong Kong entity of the group has filed such a notice.

The CbC notification must be filed with the IRD electronically through the CbCR portal within three months after the accounting year-end date of the reportable group. It becomes applicable for accounting periods commencing from January 1 2018.

The notification must include the name, address and business registration number of each of the reportable group's Hong Kong entities, the reportable group's turnover, details of the Hong Kong UPE, or a SPE that is resident in Hong Kong for tax purposes. Table 1 summarises both the CbC notification and CbC return filing due dates.

Table 1

Year-end date

CbC notification due date

CbC return filing due date

December 31 2018

March 31 2019

December 31 2019

March 31 2019

June 30 2019

March 31 2020

June 30 2019

September 30 2019

June 30 2020

September 30 2019

December 31 2019

September 30 2020


The CbC notification and reporting requirements are statutory obligations.

Hong Kong companies within a MNE group should determine whether their group's annual consolidated group revenue exceeds the HK$6.8 billion threshold, and if a CbC reporting notification must be filed with the IRD. The determination of the annual consolidated group revenue will initially be for the immediate preceding year. We expect there will be a number of complexities that need to be resolved. These include:

  • Even if no consolidated financial statements have been prepared, the total consolidated group revenue must be determined as if the group had been required to produce them;

  • Where the local entity has a different balance date from that of the UPE, calculations must be made and filing deadlines must be met; and

  • For private MNE groups, it is important to determine who is the UPE. This is especially relevant to those groups which have private holding companies that hold the operating group companies.

more across site & bottom lb ros

More from across our site

Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.
ITR's latest quarterly PDF is now live, leading on the rise of tax technology.
ITR is delighted to reveal all the shortlisted firms, teams, and practitioners for the 2022 Americas Tax Awards – winners to be announced on September 22
‘Care’ is the operative word as HMRC seeks to clamp down on transfer pricing breaches next year.
Tax directors tell ITR that the CRA’s clampdown on unpaid taxes on insurance premiums is causing uncertainty for businesses as they try to stay compliant.
HMRC has informed tax directors that it will impose automated assessments on online sellers with inaccurate VAT returns, in a bid to fight fraud.
UK businesses need to reset after the Upper Tribunal ruled against BlackRock over interest deductions it claimed on $4 billion in inter-company loans, say sources.
Hong Kong SAR’s incoming regime for foreign income exemptions could remove it from an EU tax watchlist but hand Singapore top spot in APAC.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree