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Hong Kong's Parliament Endorses Improved R And D Tax Breaks

Friday, November 2, 2018

Hong Kong's Legislative Council has passed legislation to improve the jurisdiction's tax incentives for research and development spending.

The Inland Revenue (Amendment) (No. 3) Bill 2018, which was passed on October 24, is intended to encourage more enterprises to conduct R&D activities in Hong Kong by amending and restructuring Section 16B of the Inland Revenue Ordinance. The amendment provides for a new schedule, which sets out the operational details of the basic and enhanced tax deduction regimes for R&D activities.

Under the changes, the first HKD2m (USD255,000) spent on qualifying R&D will enjoy a 300 percent tax deduction and expenditure above this threshold will benefit from a 200 percent deduction. There is no cap on the amount of enhanced tax deduction.

At present, the Inland Revenue Ordinance provides a 100 percent deduction for expenditure on R&D, as well as 100 percent deduction for capital expenditure incurred on the purchase of plant or machinery for R&D in the year it was incurred.

The bill is expected to soon be published in Hong Kong's Official Gazette.