On 26 February 2020, the Financial Secretary of Hong Kong announced the Budget for the fiscal year 2020-21. The forecast is that for the fiscal year 2019-20, there will be a deficit of around HKD 37.8 billion, and that the fiscal reserves are expected to become HKD 1,133.1 billion by 31 March 2020. The focus of this Budget has been on supporting enterprises, safeguarding jobs, stimulating the economy and relieving people’s burden.
Looking ahead for 2020, the Financial Secretary is of the view that the global economy is full of uncertainty due to several factors, such as the outbreak of the coronavirus epidemic, the development of US-China trade relations, the geopolitical risks in the Middle East and the After-Brexit negotiations.
Nevertheless, Hong Kong’s economic fundamentals remain solid and therefore its core competitiveness will not be shaken. The economy of Hong Kong should be able to recover once the epidemic is over.
Key support and relief measures
Same as previous years, the Financial Secretary proposes a number of support and relief measures in his 2020-21 Budget with a view to alleviate the financial burdens of enterprises and individuals. The major measures relevant for enterprises as well as middle-class and upper-class individuals include the following.
(i) Reduction of profits tax for the year of assessment 2019-20 by 100%, subject to a ceiling of HKD 20,000 per case;
(ii) Waiver of business registration fees for the fiscal year 2020-21 (please note that levy in the amount of HKD 250 is still payable);
(iii) Waiver of registration fees for all annual returns charged by the Companies Registry for two years;
(iv) Provision of financial supports by means of:
– providing a subsidy to each eligible non-domestic household accounts for four extra months to cover 75% of its monthly electricity charges, subject to a monthly cap of HKD 5,000 per account;
– waiving 75% of water and sewage charges payable by non-domestic households for four extra months, subject to a monthly cap of HKD 20,000 and HKD 12,500 respectively per household;
– providing a new round of rental subsidy for six months to local recycling business;
– reducing rent by 50% for another six months for eligible tenants of government properties, government land and EcoPark;
– reducing rent and fees by 50% for another six months for eligible operators of government properties covered by short-term waivers;
– introducing a concessionary low-interest loan under the Small and Medium Enterprise (SME) Financing Guarantee Scheme, under which 100% guarantee will be provided by the government; and
– injecting HKD 2 billion into the Innovation and Technology Fund for launching a Re-industrialisation Funding Scheme to subsidise manufacturers on a matching basis to set up smart production lines in Hong Kong.
(i) Reduction of salaries tax and tax under personal assessment for the year of assessment 2019-20 by 100%, subject to a ceiling of HKD 20,000 per case;
(ii) Waiver of the government rates charged on property owners for a period of four quarters during the fiscal year 2020-21, subject to a ceiling of HKD 1,500 per quarter for each rateable property; and
(iii) Payment of cash of HKD 10,000 to each Hong Kong permanent resident aged 18 or above.
Please note that most of the above-mentioned measures are subject to enactment of legislation before effective.
Other major tax related issues
(A) Global minimum tax rate
The Organisation for Economic Co-operation and Development (OECD) is exploring the proposal of setting rules for imposing a global minimum tax rate. Under this proposal, if the tax paid by a multinational corporation in Hong Kong is lower than the new global minimum tax rate, its parent company will be subject to additional taxes or defensive measures imposed by the jurisdictions where they are located.
The Hong Kong government will continue to keep a close watch on the developments of the OECD’s above proposal, make assessments and devise corresponding measures. The Financial Secretary will invite scholars, experts and members of the business community who are experienced in the fields of international taxation and economic development to tender advice on the matter. This is to ensure that Hong Kong’s tax regime is not only in line with new developments in the international tax scene, but also helps help Hong Kong to maintain its premier business environment and competitiveness.
(B) Introducing more competitive tax arrangements for private equity funds
In order to promote the development of private equity funds in Hong Kong, the Hong Kong government plans to provide tax concessions for carried interest issued by private equity funds operating in Hong Kong, subject to the fulfilment of certain conditions. The Hong Kong government will consult the industry on this proposal, and the relevant arrangement will be applicable starting from 2020-21 upon completion of the legislative exercise.
(C) Offering 50% profits tax concession to eligible insurance business
In order to promote the marine insurance business, 50% profits tax concession will be offered to eligible insurance businesses including the marine insurance industry.
(D) Tax concessions for ship leasing business
The Hong Kong government will amend the relevant legislation to provide tax concessions for the ship leasing business, including offering a profits tax exemption to qualifying ship lessors and a half-rate profits tax concession to qualifying ship leasing managers. In addition, the Hong Kong government will also explore other tax measures to attract more global shipping business operators and commercial principals to set up business in Hong Kong.
(E) Enhanced tax deduction for qualifying R&D expenditure
The Hong Kong government will continue to provide enhanced tax deduction for qualifying R&D expenditure incurred by enterprises and subsidise local R&D work through the Innovation and Technology Fund (ITF), with a view to fostering technology as well as application and commercialization of R&D results.