Hong Kong To Triple R&D Incentives

The Hong Kong government gazetted the Inland Revenue (Amendment) (No. 3) Bill 2018. The Bill draft provides an enhanced tax deduction for expenditure incurred by enterprises on qualifying research and development (R&D) activities.

New Legislation

Under current legislation, enterprises with qualified activities are able to enjoy a 100% deduction for expenditure on R&D, as well as 100% deduction for capital expenditure incurred on the purchase of plant or machinery for R&D in the year it was incurred. According to the Bill draft, enterprises will be able to enjoy additional tax deduction for expenditure incurred on domestic R&D. The first $2 million spent on qualifying R&D will enjoy a 300% tax deduction and expenditure beyond that will enjoy a 200% deduction. There is no cap on the amount of enhanced tax deduction.

Conducting R&D Activities

The Bill aims at encouraging more enterprises to conduct R&D activities in Hong Kong. "R&D is the fountain of innovation and technology. Commercialisation of R&D results and development of new products and services will help improve people's livelihood, bring about quality jobs and support the development of new industries in Hong Kong. The Government has set a goal to double the Gross Domestic Expenditure on R&D as a percentage of the Gross Domestic Product to 1.5% by 2022. We also aim to progressively reverse the ratio of public sector versus private sector expenditure on R&D from government-led to private-led, to make such investment sustainable. The proposals in the Bill will serve to achieve the above objectives," a government spokesman said. The Bill will be introduced into the Legislative Council for first and second readings on May 2.

Source: Inland Revenue Department

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