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Hong Kong proposes tax reforms for 2018

Hong Kong member Lawrence Cheung CPA Company provides an update on new tax proposals set to benefit Hong Kong's SME business sector and attract investment in research and development (R&D).

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Mrs. Carrie Lam, Chief Executive of Hong Kong SAR, set out her plans for tax changes in 2018 in her first Policy Address on October 12, 2017. Two tax measures are being proposed:

1. A Two-tier profits tax rates regime
To increase Hong Kong's global competitive position and help the country's small and medium-sized enterprises sector, it is proposed that a two-tiered profits rates regime should enter into force in 2018. Under this regime, the first HK$2 million (= US$0.256 million) of profits earned by a company within the same group will be subject to a lower profits tax rate of 8.25%. This is half of the current profits tax rate of 16.5%.

Amie Cheung, Principal at Lawrence Cheung CPA Company comments: "To ensure that the tax benefits will benefit SMEs, restrictions will be introduced so that each group of enterprises may only nominate one enterprise to benefit from the lower tax rate."

The standard profits tax rate of 16.5% would remain unchanged for profits above HK$2 million.

2. Additional tax deduction for Research & Development (R&D) expenditure
To encourage R&D investment by enterprises, Tony Cheung adds: "The Chief Executive has proposed a 300% tax deduction for the first HK$2 million incurred in eligible R&D expenditure, with the remainder set at 200%."

For tax advice in Hong Kong

Please contact Tony Cheung at Lawrence Cheung CPA Company in Hong Kong.