Hong Kong has introduced a bill to expand tax deductions for intellectual property purchases and upfront licence fees, aiming to encourage IP trading, technology transfer and innovation while introducing safeguards against excessive claims.
Hong Kong’s government has published the Inland Revenue (Amendment) (Tax Deductions for Intellectual Property Expenditure) Bill 2026 on 16 October 2026, relaxing tax deduction arrangements for capital expenditure that businesses incur on buying intellectual property (IP) rights or on licences to use them.
The Commerce and Economic Development Bureau says the Bill puts into effect a measure announced in the 2025/26 and 2026/27 Budgets. The aim is to lower the cost of IP transactions, encourage more IP trading, and support knowledge-intensive industries in Hong Kong.
The government has already introduced a concessionary tax rate under the patent box initiative, and the Bill builds on that step. The authorities expect the new rules to make Hong Kong a more attractive place for cross-border technology transfer and IP financing.
The Bureau links this work to the National 15th Five-Year Plan and to the city’s goal of becoming an international innovation and technology centre and a regional IP trading centre.
Three new deduction routes
The Bill proposes to relax the IP-related tax deduction arrangements by allowing tax deductions for relevant capital expenditure incurred by enterprises in respect of the following:
- Purchase of eligible IP rights from associates: Allowing tax deduction for capital expenditure incurred by enterprises for the purchase of eligible IP rights from associates, such as group affiliates, to encourage multinational enterprises to centralise their IP management in Hong Kong, and to facilitate domestic intra-group transfer and business activities;
- Purchase of eligible IP rights which a licensee outside Hong Kong uses: Where the licensing income from the eligible IP rights is regarded as arising in or derived from Hong Kong under the foreign-sourced income exemption regime and is chargeable to profits tax in Hong Kong, the capital expenditure incurred for the purchase of the IP rights may also be allowed for tax deduction on a proportionate basis; and
- Upfront licence fee for the use of eligible IP rights in a licensing arrangement: To further encourage IP development and commercialisation, enterprises may deduct upfront licence fees incurred for the use of eligible IP rights in a licensing arrangement.
Safeguards against abuse
The Bill includes several checks to protect the tax base. A main purpose test applies to IP purchases from associates. Deductions for purchases from Hong Kong associates will follow a set calculation method.
Where spending on IP from non-Hong Kong business associates, or on a licence from an associate, exceeds a specified threshold, a third-party independent valuation report must support the claim. The valuation requirement exists to prevent excessive deductions.
The amendments apply to contracts entered into on or after 1 April 2026, whether for buying eligible IP rights or for licensing them.
The Bill goes to the Legislative Council for First Reading and Second Reading on 28 October 2026.
