Resources for Professional Firms

Tax updates from the APAC region

Find out more about recent changes to the tax systems of Hong Kong and Japan.

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Hong Kong enacts two-tiered profits tax regime

Amie Cheung of Hong Kong accounting firm member Lawrence Cheung CPA reports that the two-tiered tax rates in the table below become effective from the year of assessment 2018/19 (i.e. the financial year ending between 1 April 2018 and 31 March 2019).

Hong Kong two tiered tax regime

In order to prevent income splitting, the new law contains restrictive provisions prescribing that “connected entities” can only elect a single entity as eligible for the two-tiered regime for a given year of assessment.

Enhanced tax deduction for qualifying R&D expenditure

To encourage more enterprises to conduct R&D activities in Hong Kong, new law was enacted to provide for enhanced tax deduction for expenditure incurred by enterprises on a qualifying R&D activity.

R&D expenditure is classified into two categories:

R&D tax deductions in Hong Kong

Key features of the new law:

R&D tax incentives in Hong Kong

The Inland Revenue Department recently released practice note DIPN 55 which sets out its interpretation of the R&D tax concession, the practical application of the concession and documentation requirements.

A “qualifying R&D activity” is:
(a) an activity in the fields of natural or applied science to extend knowledge;
(b) an original and planned investigation carried on with the prospect of gaining new scientific or technical knowledge and understanding; or
(c) the application of research findings or other knowledge to a plan or design for producing or introducing new or substantially improved materials, devices, products, processes, systems or services before they are commercially produced or used.

DIPN 55 clarifies that the R&D activity is not required to be wholly carried on in Hong Kong, but only local Hong Kong expenditure may qualify for the enhanced deductions.

Changes to Japan's VAT system

Masa Tabuchi of Tabuchi Accounting Office reports that Japan's VAT tax rate increased for the first time in five years. It has been raised from 8% to 10% from October 2019.

Multiple tax rates apply and a new booked authored by Masa and his associates has just been published. Contact Masa for more information.