Hong Kong Tax News Flash

May 2026, Issue 6

Hong Kong enhances tax deduction proposals for intellectual property

Following a two-month consultation earlier this year, the HKSAR Government (Government) has recently set out in a paper submitted to the Legislative Council Panel on Commerce, Industry, Innovation and Technology its refined proposals to expand the profits tax deduction for capital expenditure on intellectual property (IP), after considering the views received during the consultation. The original consultation paper covered two broad areas of the deduction rules: (1) allowing deductions for covered IP acquired from associates; and (2) allowing deductions for upfront licence fees for the right to use covered IP.

The refined proposals enhance certain aspects of the original proposals and, most notably, introduce a new proposal allowing deductions for the relevant purchase cost of covered IP used by a licensee outside Hong Kong, where the related licensing income is taxable under the foreign-sourced income exemption (FSIE) regime.

We are pleased that the Government has adopted several of our recommendations, including:

• the newly introduced proposal regarding tax deductions for covered IP under a licence where the related IP income is taxable under the FSIE regime;
• excluding from profits tax the capital gains portion of the transferor’s sale proceeds in a domestic intra-group IP transfer;
• reconsidering the HK$3 million threshold for the third-party independent valuation requirement; and
• allowing taxpayers, subject to certain conditions, to rely on an independent valuation report covering multiple assets (including the covered IP) to satisfy the valuation requirement, rather than requiring a standalone IP valuation report.