2017 Policy Address: Highlights for Hong Kong Companies

On 11 October 2017, Hong Kong’s Chief Executive Ms. Carrie Lam gave her first Policy Address (“the Policy”) revealing her vision for the Special Administrative Region. It is important to note however that all initiatives mentioned in the Policy are only proposed and are subject to approval by the legislative council. If approved, they will only come into effect in 2018 but when they do some will affect Hong Kong companies. If you have a Hong Kong company you should read this.

With that said, if you are considering to incorporate a new Hong Kong company or if you already have one, you’ll want to check out our highlights of the CEOs proposals that will affect your intended or existing company if executed:

Innovation & Technology

• Set aside $10 billion for university research funding to encourage spending in research and development (R&D) by private companies.

• Invest $700 million into facilitating projects geared towards developing Hong Kong into a Smart City. For more details check out the Government’s Consultancy Report.

• Launch of a $500 million “Technology Talent Scheme” to nurture tech talent.

Taxation

• Two-tier profits tax system. Profits tax rate reduction to 8.25% on first $2 million profits, the standard 16.5% rate will apply on remaining taxable profits.

• Super tax deduction to encourage R&D investment. 300% tax deduction will be provided for the first $2 million eligible R&D expenditure with the remainder at 200%. So, for example, if a company spends $1 million in R&D expenses, if eligible, they can enjoy up to $3 million deduction from their tax assessable profits.

Economy

• Demolish and redevelop three government buildings in Wan Chai to create a new integrated wing for the Hong Kong Convention and Exhibition Centre.

Creative Industries

• Inject $1 billion into CreateSmart Initiative to reinforce support for design and creative industries and to nurture related talent.

Labour Rights

• Abolishment of arrangement for ‘offsetting’ severance payment and long service payment with funds accumulated in employee’s MPF (Mandatory Provident Fund – Hong Kong’s version of a retirement scheme) while mitigating the impact on enterprises, particularly SMEs.

• Increase statutory paternal leave from three to five days.

Of all the proposals the one that will have the most widespread impact on Hong Kong businesses is the introduction of the two-tier profits tax system. The reduction of the tax rate to just 8.25% on the first $2 million profits will undoubtedly create an opportunity to generate profit after tax to pay a dividend when possible, particularly considering that dividend is not taxable in Hong Kong.

For full details of the Policy click here. Want to know more about HK Companies in general? Get in touch by clicking the button below.