On 11 April 2019, the Inland Revenue Department (“IRD”) published its practice note regarding the research and development (“R&D”) tax concession in Hong Kong. DIPN 55 sets out the IRD’s interpretation of the R&D tax concession, the practical application of the concession and documentation requirements.
Under the New Law, effective for expenditures incurred on or after 1 April 2018, qualifying R&D expenditures on a qualifying R&D activity (wholly undertaken and carried on within Hong Kong) will be eligible for a 300% deduction for the first HK$2 million (USD250k), and the remainder, a 200% deduction without limitation. Non-qualifying R&D expenditures will continue to be eligible for the normal 100% deduction.
With respect to subcontracted-out qualifying R&D activities, the payments must be made to a “designated local research institution” to qualify for the additional deductions.
For in-house qualifying R&D activities, expenditures that qualify for the additional deductions are: (i) in relation to an employee who is engaged directly and actively in the activities; or (ii) on a consumable item that is used directly in the activities.
