Hong Kong slashes tax on businesses' first $2m profit

R&D firms can have as much as a 300% tax deduction.

Businesses can expect a reduced tax rate of 8.25% on their first $2m after the Hong Kong government announced the rollout of a two-tier profits tax system.

According to PwC, a super tax deduction for research and development expenditure (R&D) will also be implemented to encourage more innovators to come to Hong Kong.

A 300% tax deduction will also be offered for the first $2m of qualifying R&D expenditure incurred by enterprises, whilst a 200% tax deduction will be available for the remaining expenditure.

To address potential abuse, anti-avoidance measures will prevent groups from setting up numerous enterprises and splitting their businesses to enjoy multiple entitlements at the reduced rate.

In addition to the super tax deduction, non-tax measures for supporting I&T development in Hong Kong, such as providing investment funding for I&T start-ups and nurturing young talent in the I&T field, were also mentioned in the Policy Address.

PwC Hong Kong tax partner Jeremy Choi said, "The HKSAR Government will need to carefully consider the scope of activities and expenditure that qualify for the deduction. The compliance burden for taxpayers, and whether any measures introduced will bring undue complexity or impracticality to taxpayers, also need to be considered."