On 22 February 2023, the Financial Secretary of Hong Kong announced the Budget for the fiscal year 2023-24 with the theme ‘Leaping Forward Steadily, Together We Bolster Prosperity under Our New Vision’. This is the first Budget since Hong Kong’s emergence from the epidemic and resumption of quarantine-free travel with other jurisdictions.

Looking ahead for 2023, the Financial Secretary believes that the global economy is still shadowed by uncertainty due to various factors, such as the sharp tightening of monetary policies by major central banks, the deceleration of the economic growth in the United States and Europe, the potential further increment in the interest rates in the United States, the sluggish external demands and the heightened geopolitical tensions.

Having said that, due to the accelerated growth of the Mainland China economy, lifting of restrictions on cross-boundary travel, revival of local economic activities, increment of local private consumption and rapid return of Hong Kong’s exchanges with Mainland China and other countries to normalcy, the Financial Secretary forecasts that the Hong Kong economy will have a visible rebound this year with growth of 3.5% to 5.5% for the year as a whole.

Key support and relief measures

Same as the prior years, the Financial Secretary proposes many support and relief measures in the Hong Kong Budget 2023-24 to alleviate the financial burdens of enterprises and individuals. The major measures relevant for enterprises as well as individuals include the following:

Enterprises

• Reduction of profits tax for the year of assessment 2022-23 by 100%, subject to a ceiling of HKD 6,000 per case;

Provision of financial supports by means of:

• Granting rates concession for non-domestic properties for the first two quarters of 2023-24, subject to a ceiling of HKD 1,000 per quarter for each rateable property;

• Offering a 50% rental or fee concession to eligible tenants of government properties and eligible short-term tenancies and waivers under the Lands Department for six months during the period from July 2023 to 31 December 2023; and

• Extending the application period of all guarantee products under the SME Financing Guarantee Scheme from end-June 2023 to end-March 2024.

Individuals

• Reduction of salaries tax and tax under personal assessment for the year of assessment 2022-23 by 100%, subject to a ceiling of HKD 6,000 per case;

• Increment of (i) child allowance and (ii) additional child allowance for children born during the year of assessment from HKD 120,000 to HKD 130,000 respectively starting from the year of assessment 2023-24;

• Offering rates concession for domestic properties for the first two quarters of 2023-24, subject to a ceiling of HKD 1,000 per quarter for each rateable property; and

• Adjusting the value bands of the ad valorem stamp duty payable for sale and purchase or transfer of residential and non-residential properties (Rates at Scale 2) to ease the financial burden of the buyers, particularly for the first time local buyers for small and medium residential units.

The new value bands are as follows:

Amount or value of the consideration (whichever is the higher)	Rate
Up to $3,000,000	$100
$3,000,001 to $3,528,240	$100 + 10% of the excess over $3,000,000
$3,528,241 to $4,500,000	1.5%
$4,500,001 to $4,935,480	$67,500 + 10% of the excess over $4,500,000
$4,935,481 to $6,000,000	2.25%
$6,000,001 to $6,642,860	$135,000 + 10% of the excess over $6,000,000
$6,642,861 to $9,000,000	3.00%
$9,000,001 to $10,080,000	$270,000 + 10% of the excess over $9,000,000
$10,080,001 to $20,000,000	3.75%
$20,000,001 to $21,739,120	$750,000 + 10% of the excess over $20,000,000
$21,739,121 and above	4.25%

Please note that most of the above-mentioned measures are subject to enactment of legislation before effective.

Other major tax-related issues in the Hong Kong Budget 2023-24

Disposal of equity interests

The Government will put forward an enhancement proposal in March 2023 to provide clearer guidelines on whether onshore gain from disposal of equity interests will be subject to Hong Kong tax.

The initiative will not only facilitate business expansion and restructuring through disposal of equity interests, but also enhance tax transparency, lower the compliance cost of business, increase the competitiveness of Hong Kong’s tax regime and enhance the attractiveness of Hong Kong as an international investment and business hub.

Family office

To attract more family offices to Hong Kong, the Government introduced legislative amendments into the Legislative Council in December 2022, under which profits tax exemption for qualifying transactions of family-owned investment holding vehicles managed by single family offices in Hong Kong will be offered.

The tax concession, upon legislation, will be applicable as from 1 April 2022.

Enhancement of aircraft leasing preferential tax regime

The Government will enhance the aircraft leasing preferential tax regime, including offering tax deduction on the acquisition cost of aircraft and expanding the scope of leases and aircraft leasing activities qualifying for the tax regime.

The objective is to establish Hong Kong as an aircraft leasing and services hub.

The Government has conducted consultation on the proposed enhancement measures, and will introduce a bill into the Legislative Council in the fourth quarter of 2023.

Patent Box tax incentive

With a view to encourage the innovation & technology sector to carry out more research & development activities as well as create more patented inventions with market potential in Hong Kong, the Government will introduce a ‘patent box’ tax incentive to provide tax concessions for profits sourced in Hong Kong from qualifying patents generated through the R&D activities.

The Government will conduct the consultation with the relevant parties within this year and target to submit the legislative amendments to the Legislative Council in the first half of 2024.

Global minimum effective tax rate

Following the international tax reform proposal made by the Organisation for Economic Co-operation and Development (OECD) addressing the Base Erosion and Profit Shifting (BEPS 2.0 Pillar Two), Hong Kong will implement the global minimum effective tax rate of 15% on large multinational enterprise (MNE) groups with global turnover of at least EUR 750 million, to safeguard its taxing rights and maintain the competitiveness of its tax regime.

The Government has been closely liaising with the relevant parties and also closely monitoring the implementation plan of other tax jurisdictions.

Hong Kong targets to introduce the global minimum effective tax rate on the large MNE groups and implement the domestic minimum top-up tax starting from 2025 onwards. A consultation exercise will be launched to allow MNE groups to make early preparation.

Enhancing and attracting inbound investments

Re-domiciliation of overseas company to Hong Kong

With a view to attract more MNEs to establish a business presence in Hong Kong, a mechanism will be introduced to provide facilitation for companies domiciled overseas for re-domiciliation to Hong Kong.

The Government will conduct consultation and submit the legislative proposals during the year 2023-24.

Capital Investment Entrant Scheme

In order to further enrich the talent pool and attract more new capital to Hong Kong, the Government will introduce a new Capital Investment Entrant Scheme, under which applicants shall make investment at a certain amount in the local asset market, excluding property.

Upon approval, the applicants may reside and pursue their development in Hong Kong. The Government will announce the details of this new scheme later.

HKWJ can assist

The Hong Kong Budget 2023-24 makes it clear that the Government will continue to introduce various tax incentives and provide facilitations to attract more business to Hong Kong.

Given the tax system in Hong Kong and tax rates that are rather low when compared to most of foreign tax jurisdictions, one may consider to establish or further expand its business in Hong Kong.

Do you have any questions how the Hong Kong Budget 2023-24 impacts you or your company? Or any other tax or corporate-related questions? Feel free to contact us now.