Inland Revenue (Amendment) (No.7) Bill 2017, which seeks to implement the two-tier profits tax system mentioned in the 2017 Policy Address delivered by the Chief Executive in October 2017, was gazetted on 29 December 2017. Under the proposed two-tier system, the first HK$2 million of assessable profits of corporations and unincorporated businesses will generally be taxed at 8.25% and 7.5% respectively irrespective of their size and industry. As an anti-avoidance measure, a “group of connected entities” can only nominate one entity within the group to enjoy the reduced tax rate for a given year of assessment. The two-tier system will be effective from year of assessment 2018/19.
The proposed two-tier profits tax system signifies the HKSAR Government’s commitment on maintaining a competitive tax rate and fostering a favourable business environment in Hong Kong. It can be regarded as a relatively bold measure put forward by the HKSAR Government in recent years to enhance the tax competitiveness of Hong Kong as it applies to all corporations and unincorporated businesses in general and will significantly reduce the tax burden of most taxpaying SMEs.
We look forward to seeing more competitive tax measures to be introduced by the current-term administration to drive the economic growth of Hong Kong, such as the super tax deduction for research and development expenditure and tax incentive for regional headquarters in Hong Kong.