Hong Kong SAR: Relief measures are tax-exempt under the anti-epidemic fund
Lewis Lu and John Timpany of KPMG analyse the tax exemptions provided on subsidies and financial assistance granted under the anti-epidemic fund.
The Hong Kong SAR government issued ‘The Exemption from Salaries Tax and Profits Tax (anti-epidemic fund) Order’ (order) on May 27 2020 following the release of substantial stimulus packages to support businesses and individuals adversely impacted by the COVID-19 outbreak.
The order took effect on May 29 2020 and applies from the year of assessment 2019/2020. The order provides tax exemptions for most of the subsidies and financial assistance granted under the anti-epidemic fund (AEF) to businesses and individuals.
Beneficiaries of the assistance granted under the AEF will be exempt from profits tax and salaries tax unless “the sums are paid for general business activities and are not paid in a matching arrangement”. Most of the key supporters for businesses such as the employment support scheme (ESS) are covered by the tax exemption. A summary of the proposed tax treatment for the two rounds of measures under the AEF can be found online.
The same principles will be adopted to provide tax exemptions as and when further relief measures are rolled out under the AEF.
In respect of the 2019/20 tax returns:
Employers and employees do not need to report the sums exempted in the tax returns upon commencement of the order; and
Businesses or individuals who have already filed their tax returns can submit written notifications to Hong Kong SAR’s Inland Revenue Department (IRD) to amend the relevant information. Employers should file revised employer’s return(s) for the relevant employee(s), if applicable.
Businesses welcome this much awaited confirmation of the tax treatment of the financial assistance granted under the AEF. The granting of tax exemptions for most of the relief measures, including the ESS, further alleviate the financial burden of industries, businesses and individuals impacted by the COVID-19 outbreak.
However, while tax remains an important consideration, businesses should not lose sight of other factors, such as long-term business plans, when assessing their eligibility for the relief measures.
From a tax return filing perspective, businesses or individuals who have previously included the subsidies received under the AEF as taxable income in their tax returns should seek to amend these tax returns. Businesses should consult their local tax advisors on the implications of receiving tax exempt subsidies when preparing or revising tax returns for submission to the IRD.
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