Corporate Tax News Issue 58 - April 2021

2021/22 Hong Kong budget highlights

On 24 February 2021, the Financial Secretary, Mr Paul Chan, delivered his fifth Budget Speech, in which forecasted a record high deficit for 2020/21. Estimated government revenue is HKD 29 billion lower than the original estimate, mainly due to the lower-than-expected revenue from land premiums caused by deferment of the disposal timetable of a high-value commercial site in the year. Estimated government expenditure, on the other hand, is HKD 89.3 billion higher than the original estimate, resulting in a deficit of HKD 257.6 billion for 2020/21.

The year ahead continues to be challenging and difficult, and a deficit of HKD 101.6 billion is envisaged. 

Highlights of the business tax measures to support enterprises, revive and stimulate the economy, as well as tax policy, are summarised as follows:

Overcoming the epidemic

Support enterprises

  • Extend the application period of 100% guarantee low-interest loans for enterprises to the end of December 2021, raise the loan ceiling to HKD 6 million, extend the repayment period and duration of the principal moratorium.
  • Continue to grant 75% rental/fee concession for eligible Government properties/short-term tenancies and waivers for six months, starting from April 2021.
  • Grant 100% concession for eligible Government properties/short-term tenancies closed at the Government’s request.

Revive the economy

  • Issue HKD 5,000 electronic consumption vouchers in instalments to each eligible Hong Kong permanent resident and new arrival aged 18 or above to facilitate and stimulate local consumption.
  • Allocate HKD 375 million to the Hong Kong Trade Development Council to enhance its capability to organise online activities and to proceed with digitalisation.
  • Earmark HKD 765 million to support the Hong Kong Tourism Board in reviving the tourism industry.

Stimulating the economy

  • Encourage real estate investment trust (REIT) listings in Hong Kong by subsidising 70% of the relevant expenses paid to local professional service providers, subject to a cap of HKD 8 million per REIT.
  • Launch a Pilot Insurance-linked Securities Grant Scheme to subsidise issue costs.
  • Create new legal framework to allow foreign investment funds to re-domicile to Hong Kong for registration as open-ended fund companies (OFCs) or limited partnership funds (LPFs), with legislative proposals to be tabled in the second quarter of this year.
  • Encourage OFCs setup in or re-domiciliation to Hong Kong by subsidising 70% of the relevant expenses paid to local professional service providers, subject to a cap of HKD 1 million per OFC.
  • Attract family office business by undertaking to review relevant tax arrangements.

Innovation and technology

  • Inject HKD 9.5 billion into the Innovation and Technology Fund by two yearly instalments.
  • Commence progressively the operation of the first batch of about 20 research and development laboratories under the ‘InnoHK Research Clusters’ in the first quarter of this year.
  • Consider the Hong Kong Monetary Authority’s Fintech Supervisory Sandbox to reduce time for launching innovative financial products in the market.

Air Cargo Sector

  • Explore measures to facilitate trans-shipment through Hong Kong, to maintain Hong Kong’s competitive edge as an international air cargo hub.

Tax policy

  • Keep profits tax and salaries tax rates unchanged for the time being, but hint adjustments at an appropriate time.
  • Confirm that Hong Kong will actively implement the OECD’s BEPS 2.0 proposals which are targeted at large multinational companies, and undertake to minimise the impact on local small and medium-sized enterprises (SMEs) where possible.

Our comments

  • While we understand the difficulties faced by the Government, SMEs may be disappointed at the proposed Budget, which hands out less favourable short-term relief measures.
  • We would also like to see the Government’s active consideration of our suggestions on various tax reliefs, such as deductions for rental payments, and for SMEs, tax loss carried-back (please refer to our 2021-22 Budget Proposals).
  • As regards tax policy development, taxpayers will welcome more transparency on the Government’s forward-looking work plans on how Hong Kong is going to implement BEPS 2.0 and broaden Hong Kong’s tax base.

Agnes Cheung