Hong Kong tax newsletters
Mazars’ comments on Hong Kong tax issues.
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March 2018 - Hong Kong Issued Draft Legislation on Implementation of BEPS Action Plans
Further to its joining of the BEPS Inclusive Framework of the Organization for Economic Co-operation and Development (“OECD”) in June 2016, Hong Kong is obliged to introduce legislation to implement the various minimum standards under the OECD’s Base Erosion and Profit Shifting (“BEPS”) Action Plans1. On 29 December 2017, Inland Revenue (Amendment) (No.6) Bill 2017 (“Amendment Bill”) 2 was gazetted. The Amendment Bill covers (1) introduction of the statutory transfer pricing regime, (2) implementation of the various minimum standards under the OECD’s BEPS Action Plans and (3) revise the fees for applying for the advanced ruling.
February 2018 - Hong Kong to Introduce Transfer Pricing Legislation
Hong Kong has always been relying on a few provisions in its tax laws and a Departmental Interpretation Practice Note (“DIPN”) to combat tax avoidance through transfer pricing. Subsequent to joining the Organisation for Economic Co-operation and Development (“OECD”)’s inclusive framework for Base Erosion and Profit Shifting (“BEPS”) in June 2016 to counter BEPS, and publishing the outcome of the consultation exercise in July 2017, a draft bill mainly to implement key actions arising from the BEPS agenda was gazetted (Inland Revenue (Amendment) (No. 6) Bill 2017) (“Amendment Bill”) on 29 December 2017. It is expected to be passed before the summer of 2018.
January 2018 - Introduction of Two-Tier Profits Tax Rates System in Hong Kong
After the Chief Executive presented in her maiden Policy Address in October 2017 that a two-tier profits tax rates system will be introduced in Hong Kong, the Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) was gazetted on 29 December 2017 in order to seek to implement the above system. Once enacted, the two-tier profits tax rates system will be effective from the year of assessment 2018/2019.
November 2017 - IRD’s Practice Note on Taxation of Aircraft Leasing Activities
In order to promote Hong Kong aircraft leasing to capture the opportunity in China, the government introduced new legislation to attract aircraft leasing and management businesses to Hong Kong.
October 2017 - Two-tier Tax Systems for SMEs and New Incentives for Innovation and Technology Sector
The Chief Executive, Ms Carrie Lam, presented her maiden policy address today. Ms Lam reported that the inflation rate has dropped for 6 consecutive years and the latest unemployment rate is dropping to 3.1%, the lowest level in recent two decades. She estimated the overall GDP growth rate of Hong Kong will go higher than 3.5%, better than the annual average of 2.9% over the past decade.
August 2017 - Hong Kong Releases Consultation Report on BEPS Legislation
On 31 July 2017, the Government released the consultation report on measures to counter base erosion and profit shifting (“BEPS”) (“the Report”) following its consultation exercise towards the end of 2016. The Report indicates that the proposals in relation to transfer pricing (“TP”), country-by-country (“CbC”) reporting and dispute resolution would be introduced as laws by the end of 2017 with effect to the 2018 taxation year. Corporations would need to prepare for these changes very quickly.
July 2017 - Hong Kong Becoming a Signatory to the Multilateral Instrument
As a member of the inclusive framework, Hong Kong is committed to implementing the minimum standards of recommended measures in the Base Erosion and Profit Shifting (“BEPS”) Action Plans. In order to implement the BEPS measures, three steps have to be taken:
(a) amendment of each participation country’s domestic laws,
(b) amendment of the OECD Transfer Pricing Guidelines; and
(c) amendment of existing tax treaties
(a) amendment of each participation country’s domestic laws,
(b) amendment of the OECD Transfer Pricing Guidelines; and
(c) amendment of existing tax treaties
March 2017 - New Tax Regime for Aircraft Leasing Market
The financial secretary stated in his budget for 2015/2016 delivered in February 2015 that “aerospace financing is crucial to the development of high value added aviation services.” According to the Current Market Outlook 2016-2035 published by Boeing Capital, the new aircraft to be delivered in the next 20 years to be 39,000 worldwide, 15,000 for Asia Pacific with 6,000 for China alone. Financing this growth presents major business opportunities for financial and other professional services.
February 2017 - The new Ad Valorem Duty (“AVD”)
On 4 November 2016, the Government proposed to increase the ad valorem stamp duty rates on transfer of Hong Kong residential properties from the existing Scale 1 rates (i.e. ranging from 1.5% to 8.5%) to a flat rate of 15% with effect from 5 November 2016. The Stamp Duty (Amendment) Bill 2017 (the “Bill”) was gazetted on 27 January 2017 for the enactment of the proposed new measure.
January 2016 - Interim Tax Measures for Court-Free Amalgamation
In order to modernize Hong Kong’s company law and enhance Hong Kong’s international business and financial centre status, the government rewrote the Companies Ordinance. The New Companies Ordinance (“New CO”) came into effect on 3 March 2014. One of the significant changes to the Companies Ordinance is the introduction of a court-free amalgamation which allows a group of companies to restructure and streamline its business easier. Before such change, amalgamation could only be done by a court-sanctioned scheme of arrangement.The process is costly and therefore was seldom used.