The Government of Hong Kong has gazetted a new “patent box” tax incentive.
The Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Ordinance 2024, gazetted on July 5, implements the “patent box” tax incentive to provide tax concessions for qualifying profits sourced in Hong Kong and derived from eligible intellectual properties (IPs) created through research and development (R&D) activities.
The Ordinance mainly covers the following five key areas:
- eligible IPs covered are patents, copyrighted software, and new plant variety rights;
- eligible IPs can be registered in different places around the world and their related profits sourced in Hong Kong can benefit from the patent box tax incentive;
- the concessionary tax rate is set at 5 percent, which is substantially lower than the existing normal profits tax rate in Hong Kong (16.5 percent);
- eligible IPs must be developed by taxpayers themselves. If the R&D process involves acquisition of other IPs, or outsourcing part of the R&D activities, the amount of profits eligible for the concessionary tax rate may be reduced proportionally; and
- enterprises need to obtain local registration for their inventions or new plant varieties in order to enjoy the patent box tax incentive. This requirement will only start to implement two years after the patent box tax incentive comes into operation.
Taxpayers may apply for the patent box tax incentive starting from the year of assessment 2023-24.
The tax authority will provide further administrative guidance in this regard.
A spokesman for the Commerce and Economic Development Bureau said: “We are grateful to the Legislative Council for promptly scrutinizing and passing the relevant bill, enabling the successful implementation of a major policy measure to promote the development of IP trading under the 2023 Policy Address and 2023-24 Budget. The patent box tax incentive encourages enterprises to forge ahead with more R&D activities and promotes IP trading, thereby consolidating Hong Kong’s competitiveness as a regional IP trading centre.”