The patent box regime introduces a 5% concessionary tax rate, significantly lower than Hong Kong’s standard 16.5% profits tax rate.

The Hong Kong Inland Revenue Department (IRD) has released illustrative examples for the patent box regime.

The jurisdiction’s patent box regime was approved in 2024 and is effective for assessments starting 1 April 2023.

The regime offers a concessionary tax rate of 5% on profits from eligible IP income.

There are 31 examples, which cover:

  • Eligible persons: IP owners, licensees, and outsourced developers with their own IP.
  • Eligible IP: Software, apps, games, patents.
  • Eligible IP income: Embedded IP value in products/services.
  • Qualifying R&D activities: Feasibility studies, system improvements.
  • Non-qualifying activities: Minor bug fixes, cosmetic updates.
  • Eligible R&D expenditure: Staff costs, third-party fees.
  • Non-eligible expenditure: Related-party licensing costs, interest expenses.
  • R&D fraction computation: Determines profits eligible for tax concession.
  • Assessable profits computation: Based on qualified IP income and expenditure.

Earlier, the Hong Kong 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.