The Hong Kong Inland Revenue Department (IRD) announced the issuance of the Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Ordinance 2024 in the Official Gazette on 5 July, 2024.
One of the main aspects of the Ordinance is the introduction of the concessionary tax rate which is set at 5%, which is substantially lower than the existing normal profits tax rate in Hong Kong, currently set at 16.5%.
The Amendment Ordinance, which amends the Inland Revenue Ordinance (Cap. 112) to implement the “patent box” tax incentive to provide tax concessions for qualifying profits sourced in Hong Kong and derived from eligible intellectual properties (IP) created through research and development (R&D) activities, on the same day of its publication in the Official Gazette.
“We are grateful to the Legislative Council for promptly scrutinising and passing the relevant bill, enabling the successful implementation of a major policy measure to promote the development of IP trading under the 2023 Policy Address and 2023-24 Budget. The ‘patent box’ tax incentive encourages enterprises to forge ahead with more R&D activities and promotes IP trading, thereby consolidating Hong Kong’s competitiveness as a regional IP trading centre,” a spokesman for the Commerce and Economic Development Bureau said.
The Amendment Ordinance also covers the following key areas:
- Eligible IPs covered are patents, copyrighted software, and new plant variety rights;
- Eligible IPs can be registered in different places around the world, and their related profits sourced in Hong Kong can benefit from the “patent box” tax incentive;
- Eligible IPs must be developed by taxpayers themselves. If the R&D process involves the acquisition of other IPs or outsourcing part of the R&D activities, the amount of profits eligible for the concessionary tax rate may be reduced proportionally, and
- Enterprises need to obtain local registration for their inventions or new plant varieties in order to enjoy the “patent box” tax incentive. This requirement will only start to be implemented two years after the “patent box” tax incentive comes into operation.
As the Amendment Ordinance takes effect, taxpayers can apply for the “patent box” tax incentive starting from the year of assessment 2023/24.
The IRD has released the Amendment Ordinance and accompanying guidance for the regime. These documents detail the tax concession, the requirements, the application of the nexus approach, and other relevant matters.
Earlier, the Hong Kong SAR (HKSAR) Legislative Council passed the draft legislation (Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Bill 2024) on the patent box tax incentive regime on 26 June, 2024.
