On October 11th, new Hong Kong Chief Executive, Mrs. Carrie Lam, announced measures to stimulate the economy, including Hong Kong tax cuts to profit tax.
If you are currently running a Hong Kong company, or are looking into undertaking Hong Kong company registry soon, let's look at this good news in a bit more detail...
Are They Only Cutting Hong Kong Profit Tax?
Mrs. Lam's intention is to introduce measures to improve Hong Kong's economy; but there's more than just the tax cut, although this is obviously of special interest.
She intends to:
- Reduce profit tax for corporations by half (16.5% down to 8.25%) on the first HK$2 million of profits - this is set to particularly benefit SMEs
- Reduce taxation on the first HK$2 million of R&D expenditure by 300%, and by 200% on further expenditure
- Build 2 new convention and exhibition centres in Wan Chai
- Increase the supply of land for sale by around 1.1 million square metres of floor area in Central and Kowloon
- Lay aside 3.2 hectares of land in Tuen Mun for logistics use
- Take a larger part in the national 'Belt-and-Road' initiative - essentially China's great effort to rebuild ancient maritime and land trading routes through Asia and into Europe
- Take advantage of the 'Guangdong-Hong Kong-Macao Bay Area' development
- Promote innovation and technology development in the territory
- Develop the I&T and creative industries
- Double R&D expenditure from around 0.73% to 1.5% of HK's GDP, i.e. around HK$45 billion per year
- Start an HK$500 million technology talent scheme to spur innovation
- Give the education bureau an additional HK$3 billion to offer scholarships for local student to undertake postgraduate research studies
- Increase university research funding by HK$10 billion, specifically to improve maths, science, technology, and engineering
- Invest in 'SmartCity' infrastructure, including 'eID' allowing holders to conduct commercial and government transactions online, and pushing universal broadband coverage across the territory
- Focus on nurturing talent to improve HK's pool of expertise, especially in the construction, aviation, maritime, finance, city management, and railway fields
- Offer a green bond to mainland investors to finance green projects via HK's capital markets
SMEs in particular will be excited to enjoy lower taxation, but looking broadly, it is clear to see that Mrs. Lam is investing massively into Hong Kong's future by putting so much money into research and talent nurturing, as well as giving businesses a helping hand.
She confirmed this by recently saying at the Forbes CEO conference:
My fiscal philosophy is to invest, so cutting taxes is also a form of investment. I believe in less is more. Collecting less doesn’t mean there will be less”
There certainly will be less, as these tax cuts are worth more than HK$5 billion per year, but this is hoped to help businesses perform better and innovate more.
When Will This Happen?
The bad news is that it doesn't take effect immediately. It's scheduled to go before the LegCo in 2018, so keep your eyes peeled for these tax breaks and investments soon.
What Does This Mean To Foreign Investors?
If you already have a Hong Kong company, more profit goes to you, and not the government.
If you're thinking of Hong Kong company registry as a way to break into the Asian markets, or facilitate your own participation in 'belt-and-road' initiatives now that logistics from China to Europe are becoming more diverse (such as the Yiwu to London delivery train which takes just 18 days), then this cut in Hong Kong profit tax will make opening your own Hong Kong company even more tempting.
What's your take on this latest Hong Kong tax cut, as well as the other interesting initiatives announced to spur the territory's development?
Does this make opening an Hong Kong company even more tempting to you?
Do you have any questions, concerns, or experiences to share with us regarding Hong Kong company registry and the state of things in the territory?
Please feel free to leave a comment for us, and we will try to help, and you may also find our free eBook on HK company formation useful too, which you can get by clicking the button below: