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

Hong Kong: A summary of Hong Kong’s budget 2018 to 2019

Sponsored by sponsored-firms-kpmg.png

On February 28 2018, Hong Kong Financial Secretary Paul M P Chan delivered his speech to the Legislative Council which confirmed a record surplus of HK$138 billion ($17.6 billion). Forty percent of the surplus would be spent on relief measures while the remaining would be spent on improving public services and the future.

Key objectives

The three main objectives of the budget are:

  • Diversified economy – to create wealth for Hong Kong to better support and provide a broader range of industries for the future development of Hong Kong;

  • Investing in the future – to address the needs of the aging population and ensure that Hong Kong's living environment is improved environmentally and technologically, making it an ideal location in which to live and work; and

  • Caring and sharing – to better support children and young people with care, protection and opportunities; relieve the financial burden of middle-class families; and support the underprivileged and vulnerable in Hong Kong.

The Hong Kong government's higher than expected fiscal surplus arose from the unexpected increases in revenue from land sales and stamp duty. It is expected that Hong Kong's fiscal reserves will reach more than HK$1 trillion by March 31 2018.

Various measures introduced

The financial secretary has proposed various measures to boost several areas/industries:

  • Enhancing the innovation and technology (I&T) industry: given the global economic landscape, a large amount of the budget will be spent on developing the I&T industry, namely in four areas: biotechnology, artificial intelligence (AI), smart city development and financial technology (fintech);

  • Financial services industry: a pilot bond grant scheme will be introduced to attract local, mainland and overseas enterprises to issue bonds in Hong Kong. These measures will help develop Hong Kong's bond market, including green bonds to help provide financing for green projects. Other measures would also be introduced to support the Hong Kong bond market, as well as the insurance and asset management sectors. However, limited details have been provided on these proposed measures;

  • Small and medium-sized enterprises (SMEs): financial assistance was also pledged to help SMEs seize opportunities from the 'Belt & Road' and Great Bay Area initiatives. For other businesses, no substantial tax incentives or reductions were announced; and

  • Others: financial support and investment were also pledged for the pillar industries of tourism and transportation and logistics, as well as the construction, professional services and creative industries (such as investing HK$1 billion into the new CreateSmart Initiative (CSI) which aims to nurture the young generation and help start-ups). Hong Kong's employment shortages were also addressed by suggesting that foreign workers could be imported.

Key tax changes arising from the budget

The introduction of the regional headquarters (RHQ) tax regime in Hong Kong and the corporate treasury centre (CTC) tax incentive enhances Hong Kong's competitive position as a leading regional business and financial hub. This is in line with the Hong Kong government's key policy initiatives to boost Hong Kong's competitiveness as an RHQ location in the Asia Pacific region. The RHQ tax incentive would increase foreign investment into Hong Kong as well as increase jobs.

The Hong Kong profits tax rate for 2018/19 remained unchanged and so did the allowances. A one-off reduction of 75% for both Hong Kong profits tax and salaries tax payable for 2017/18 has been proposed subject to a ceiling of HK$30,000 each. With the introduction of the two-tiered profits tax regime, it will reduce the existing tax rate for corporations (16.5%) and unincorporated businesses (15%) by 50% for the first HK$2 million of assessable profits, where applicable.

A number of measures were also aimed at reducing the tax burden on individuals by widening the progressive rate bands from HK$40,000 to HK$50,000, thus increasing the tax bands from four to five.

Other key policy initiatives included:

  • Extending the tax concession for qualified debt instruments to include those listed on the Stock Exchange of Hong Kong and with maturity periods of any duration;

  • Extending the tax concession to specified treasury services provided by qualifying CTCs to their onshore associated corporations;

  • Commencing the operation of the regime for open-ended fund companies and related tax exemption later this year;

  • Examining the feasibility of introducing a limited partnership regime for private equity funds;

  • Continuing to participate in the negotiation of more comprehensive double taxation agreements (CDTAs); and

  • Introducing enhanced deductions for I&T expenditure, which includes a 300% tax deduction for the first HK$2 million of qualifying R&D expenditure and a 200% deduction for the remainder.


Overall, the Hong Kong budget is relatively safe and conservative and more or less follows previous years' budgets. However, the budget did not really address some core issues such as housing affordability and pollution (despite some green initiatives being introduced).



Lewis Lu

Curtis Ng

Lewis Lu ( and Curtis Ng (

KPMG China

Tel: +86 (21) 2212 3421


More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree