Hong Kong Tax News Flash

Apr 2024, Issue 6

Bill on patent box tax incentive introduced

On 28 March 2024, the Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Bill 2024 (Bill) was gazetted to implement Hong Kong’s highly anticipated patent box regime, following a one-month consultation conducted in September 2023. This comes on the heels of the various initiatives announced in the 2024/25 Budget intended to make Hong Kong a more attractive location for research and development (R&D) and intellectual property (IP) trading (buying/selling and licensing) activities.

The Bill sets out the proposed design of the patent box regime, which implements a concessionary tax rate of 5% for eligible IP income that is sourced in Hong Kong and derived from an eligible IP developed through R&D activities with effect from the year of assessment 2023/24.

In welcome news, the Government has adopted the following key recommendations raised by PwC in our submission on the proposed regime:

Setting the concessionary tax rate competitively at 5%; and
Expanding the scope of eligible IP income to cover insurance, damages or compensation derived in relation to an eligible IP.

While other suggestions made in our submission have not been implemented, the introduction of the patent box represents a positive step towards bolstering Hong Kong’s tax competitiveness in the context of R&D commercialisation decisions.

This news flash provides a snapshot of the patent box regime proposed under the Bill and our observations thereon.