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Hong Kong. New tax system announced

On October 23, 2017 the Government of Hong Kong held the Summit on New Directions for Taxation today, attracting more than 400 participants, such as government officials, business leaders and tax professionals During the Summit were discussed the formulation of forward-looking tax policies and measures, which will enhance Hong Kong's competitiveness and economic development.

Opening the summit, Chief Executive Carrie Lam said: "On the premise of ensuring the health of public finance, the (Hong Kong) Special Administrative Region Government should adopt forward-looking and strategic financial management principles in wisely using our accumulated fiscal surpluses, which are wealth derived from the community, to benefit the community."

Earlier in Hong Kong Chief Executive's 2017 Policy Address Carrie Lam addressed two tax measures including:

1) Two-tier profits tax system in Hong Kong

In order to preserve low tax rates in Hong Kong, an execution on a Two-tier profits tax system will be implemented in 2018 where the profits tax rate for the first HKD2,000,000 of profits of enterprises will be lowered from 16.5% to 8.25%, whereas the standard tax rate of 16.5% will remain for profits above that amount.

The tax break is only designed to benefit small and medium enterprises (SMEs), and to address concerns that big businesses could take advantage of the reduction, Lam said each group of enterprises would only be able to nominate one firm to enjoy the lower rate.

2) Tax Reduction on investment in R&D (Research & Development) in Hong Kong

In order to encourage enterprises to invest in R&D aspect, Mrs. Lam introduced a 300% tax deduction on the first HKD2,000,000 eligible R&D expenditure with the remainder at 200%.

The above two proposed tax policies in fact are advantageous for companies registered in Hong Kong. The Government of Hong Kong plans to accomplish the new tax system within 2018, it will be effective after the Legislative Council passed the legislation.

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