2022/23 Budget includes measures to implement BEPS 2.0

3 March 2022

Hong Kong’s Financial Secretary, Mr Paul Chan, delivered the 2022/23 Budget Speech on 23 February 2022. While the budget focuses on an expansionary fiscal policy with initiatives mainly aimed at relieving the hardship experienced by the population due to the pandemic, supporting enterprises and enhancing economic resilience, it also includes proposals that address BEPS 2.0 and promote investment (click here for a comprehensive analysis of the 2022/23 Budget measures).

BEPS 2.0

Hong Kong, as a member of the OECD’s Inclusive Framework, is one of the jurisdictions that has pledged to implement the international tax reform measures formulated by the OECD to address base erosion and profit shifting, specifically the implementation of Pillars One and Two. In his budget speech, the Financial Secretary noted that because the 15% global minimum effective tax rate under Pillar Two will target large multinationals (i.e., those with global turnover of at least EUR 750 million), it will not affect small and medium-sized enterprises in Hong Kong. The secretary also reaffirmed that Hong Kong will maintain its simple and transparent tax system, including taxation based on the territorial principle, and will take steps to minimize the compliance burden on multinationals when implementing BEPS 2.0 measures.

Hong Kong’s Advisory Panel on BEPS 2.0 will review the potential impact of the OECD measures on the local economy and report back to the Financial Secretary. A proposal is expected to be submitted to the legislature in the second half of 2022 to implement the global minimum tax rate and other measures in accordance with the OECD BEPS 2.0 framework, targeting multinational enterprises with consolidated group revenue exceeding EUR 750 million. Hong Kong also is considering the introduction of a domestic minimum top-up tax to ensure that the effective tax rate of affected multinationals is at least 15% and, therefore, safeguard Hong Kong’s taxing rights. The top-up tax would apply as from the year of assessment 2024/25.

No changes are proposed to the existing 8.25%/16.5% profits tax rates for companies or the 7.5%/15% rates for unincorporated businesses.

Investment

The Financial Secretary also cited the importance of foreign investment in economic growth, stating that the government must step up its efforts to attract investment from Mainland China and overseas. To this end, the government will allocate additional funds to enhance initiatives to promote investment.

Agnes Cheung
[email protected]