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Budget summary

Budget summary

Hong Kong skyline

Profits Tax

Persons conducting business in Hong Kong are liable to Profits Tax on profits arising in or derived from Hong Kong.

The Financial Secretary did not change the Profits Tax rates and allowances for 2018-19. As in previous years, a ‘one- off’ reduction of 75% of the Profits Tax payable for 2017-18 has been proposed, with an increased ceiling of HKD 30,000. The reduction will be reflected in taxpayers’ final tax payable for 2017-18.

Subject to the enactment of a two-tiered Profits Tax rate regime, the Profits Tax rate for corporations will remain at 16.5% for 2018-19, and for unincorporated businesses, it will remain at 15%. This proposed regime will reduce the current rate by 50% for the first HKD 2 million of assessable profits, where applicable.

The rate of deeming assessable profits from royalty type payments for the use of intellectual property will remain at 30% or 100% of the payment, as the case may be. Therefore, the effective tax rate on such payments will remain at 4.95% or 16.5% for 2018-19.

Reduction of 75% in Profits Tax payable for 2017-18, subject to a ceiling of HKD 30,000

Capital allowances

The Depreciation Allowance rates for plant and machinery remain unchanged at:

Initial Allowance: 60% of qualifying expenditure in the year the expenditure is incurred
Annual Allowance: 10%, 20% or 30% on the written down value brought forward, depending on the category to which the asset belongs


Industrial Building Allowances also remain unchanged at:

Initial Allowance: 20% of qualifying expenditure
Annual Allowance: 4% of qualifying expenditure

The Commercial Building Allowance on qualifying expenditure remains at 4% per annum.

A full deduction is available for certain capital expenditure, such as expenditure on computer hardware and software, as well as for certain other types of expenditure, which would otherwise be treated as capital in nature and non-deductible.

The 100% Profits Tax deduction has been retained for capital expenditure on environmentally friendly machinery and equipment in the first year of purchase and for capital expenditure incurred on environmentally friendly vehicles in the year of purchase.

The government proposes reducing the period over which deductions may be claimed on energy efficient building installations to one year.

Deductions for donations

The ceiling for tax-deductible charitable donations remains at 35% of assessable profits for 2018-19.

Key policy initiatives

The Financial Secretary announced the following proposals:

  • Extend tax concession for qualified debt instruments to include those listed on the Stock Exchange of Hong Kong and with maturity periods of any duration
  • Extend tax concession to specified treasury services provided by qualifying CTCs to their onshore associated corporations
  • Commence operation of the regime for open-ended fund companies and related tax exemption later this year
  • Examine the feasibility of introducing a limited partnership regime for private equity funds
  • Continue to participate in the negotiation of more Comprehensive Double Taxation Agreements (CDTAs)
  • Introduce enhanced deductions for I&T expenditure, which includes a 300% tax deduction for the first HKD 2 million of qualifying R&D expenditure and a 200% deduction for the remainder.    

A number of proposals were announced, including enhanced R&D deductions and the extension of various incentives

Salaries Tax

The Financial Secretary proposed a number of measures aimed at reducing the tax burden on individuals. With respect to Salaries Tax – which is charged on income arising in or derived from Hong Kong from an office or employment, or a pension – these measures include a one-off reduction, increases in several personal allowances, and the widening and adjusting of the progressive rate bands. The Financial Secretary also provided details of the deduction for medical insurance contributions mentioned in last year’s Budget.

A one-off reduction of 75% of Salaries Tax (and tax under personal assessment) for 2017-18 was proposed, subject to a ceiling of HKD 30,000. The reduction will be reflected in the final tax payable for 2017-18.

The tax charge for 2017-18 and 2018-19 is the lower of the:
(a) Net assessable income less charitable donations and allowable deductions at the standard rate; or
(b) Net assessable income less charitable donations, allowable deductions and personal allowances, charged at the progressive rates.

2017-18
Rate HKD 2018-19 Rate HKD
First HKD 45,000 2% 900 First HKD 50,000 2% 1,000
Next HKD 45,000 7% 3,150 Next HKD 50,000 6% 3,000
Next HKD 45,000 12% 5,400 Next HKD 50,000 10% 5,000
Balance 17%   Next HKD 50,000 14% 7,000
      Balance 17%  

The standard rate of Salaries Tax for 2017-18 and 2018-19 is 15%.

The Financial Secretary has proposed increases to the child allowances and to the dependent parent/grandparent allowances. He has also proposed introducing a personal disability allowance for eligible taxpayers.

The personal allowances for 2017-18 and 2018-19 are set out below:

    2017-18 HKD 2018-19
HKD
Personal allowances Basic
Married
Single parent
Disabled
132,000
264,000
132,000
-
132,000
264,000
132,000
75,000
Child allowances 1st to 9th child (each)
- Year of birth
- Other years

200,000
100,000

240,000
120,000
Dependent parent allowances



Dependent grandparent allowances

Aged 60 or above
Aged between 55 and 59

Aged 60 or above
Aged between 55 and 59

46,000
23,000


46,000
23,000

50,000
25,000


50,000
25,000
Additional dependent parent and grandparent allowances

Aged 60 or above
Aged between 55 and 59


46,000
23,000


50,000
25,000
Disabled dependant (spouse/child/parent/grandparent/brother/sister) allowances   75,000 75,000
Dependent brother/sister allowances   37,500 37,500

Applying the above Salaries Tax rates and allowances, a family of four will have to earn more than HKD 5,184,000 in 2018-19 before paying tax at the standard rate.

Tax deductions

Tax deductions

The above items are deductible in determining a person’s Salaries Tax liability.

Property Tax

The standard rate remains at 15% for 2018-19.

Property Tax is payable in addition to rates, and is charged to the owner of any land or buildings situated in Hong Kong at the standard rate on the ‘net assessable value’ of such land or buildings. Generally, ‘net assessable value’ is calculated as the amount of rent receivable by the owner of the subject land or buildings (net of any rates which are paid by the owner), less a statutory 20% allowance for repairs and outgoings.

There are several exemptions, notably for corporations conducting business in Hong Kong.

Rates

Rates on properties throughout the territory remain at 5% of the rateable value. However, rates for all four quarters will be waived in 2018-19, subject to a ceiling of HKD 2,500 per quarter for each rateable property.

Rates waiver for all four quarters of 2018-19, subject to a ceiling of HKD 2,500 per quarter for each rateable property

Stamp Duty

Property transactions

No changes were proposed to the Stamp Duty rates and banding on property transactions in the Budget. The banding for 2018-19 is set out as follows:

Property consideration

HKD
Exceeds
HKD
Does not exceed
Rate
  2,000,000 1.5%
2,000,000 2,176,470 HKD 30,000 + 20% of excess over HKD 2,000,000
2,176,470 3,000,000 3.0%
3,000,000 3,290,330 HKD 90,000 + 20% of excess over HKD 3,000,000
3,290,330 4,000,000 4.5%
4,000,000 4,428,580 HKD 180,000 + 20% of excess over HKD 4,000,000
4,428,580 6,000,000 6.0%
6,000,000 6,720,000 HKD 360,000 + 20% of excess over HKD 6,000,000
6,720,000 20,000,000 7.5%
20,000,000 21,739,130 HKD 1,500,000 + 20% of excess over HKD 20,000,000
21,739,130   8.5%

A flat rate of 15% applies to residential property purchases, except for Hong Kong permanent residents on the purchase of their only residential property (which is subject to a reduced rate, generally at 50% of the above amounts).

In addition, Special Stamp Duty (SSD) is imposed on the sales price or market value of residential property as at the date of sale (whichever is higher). The SSD is to be imposed at the following penal rates, depending on when the property is bought and sold:

Property holding period

6 months or less 20%
More than 6 months but not exceeding 12 months 15%
More than 12 months but not exceeding 36 months 10%

The SSD is effective for residential properties resold within 36 months after acquisition, and is in addition to the ad valorem rates of Stamp Duty already imposed (up to 15%). Both the seller and buyer are jointly and severally liable for paying the SSD.

A further Buyer’s Stamp Duty of 15% is payable on purchases of residential property by anybody who is not a Hong Kong permanent resident.

No changes were proposed to the Stamp Duty rates and banding on property transactions

Sale and purchase of Hong Kong stock

No changes were announced to the rate of Stamp Duty payable in respect of transfers of Hong Kong stock. This remains at an aggregate ad valorem rate of 0.2% of the actual consideration or the value of the stock as at the transfer date, whichever is higher.

The trading of all exchange-traded funds remains exempt from Stamp Duty.

Other points of interest

Relief measures

Similar to last year, the Financial Secretary announced several one-off relief measures including:

  • Providing an extra two months’ allowance to recipients of Comprehensive Social Security Assistance (CSSA) payments, Old Age Allowance, Old Age Living Allowance and Disability Allowance. Similar arrangements will apply to the Low-income Working Family Allowance and Work Incentive Transport Subsidy.

Support for the financial services industry

For Hong Kong to remain the most competitive financial centre in Asia, the Financial Secretary introduced various measures including:

  • Setting aside a dedicated provision of HKD 500 million to develop the financial services industry
  • Launching a Pilot Bond Grant Scheme to attract local, mainland and overseas enterprises to issue bonds in Hong Kong; and continuing to issue Silver Bonds in 2018 and 2019
  • Launching a green bond issuance programme for government’s green public works projects to promote green finance
  • Launching a Faster Payment System to provide real-time, round-the-clock, cross-institution payment and fund transfer services
  • Examining the feasibility of introducing a limited partnership regime for private equity funds and related tax arrangements
  • Exploring ways to enhance Hong Kong’s competitiveness as an insurance hub, including reviewing tax arrangements and other regulatory requirements.

Proposed measures to maintain Hong Kong’s key status as the most competitive financial centre in Asia

Nurturing innovation

The Financial Secretary also proposed various measures for boosting I&T investments and enhancing I&T commercialisation, including:

  • Focusing on four areas: biotechnology, AI, smart city development and fintech
  • Setting aside HKD 20 billion for the first phase of the Hong Kong-Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop
  • Injecting HKD 10 billion into the I&T Fund to support applied R&D
  • Earmarking HKD 10 billion for the establishment of two research clusters on healthcare technologies and on AI and robotics technologies, to attract top scientific research institutions and technology enterprises
  • Allocating HKD 10 billion to upgrade the facilities of the Science Park and enhance support for enterprises in the park
  • Allocating HKD 200 million to Cyberport to enhance support for start-ups, and another HKD 100 million to develop e-sports.

Various measures proposed to boost I&T investments and enhance the commercialisation of I&T

First Registration Tax for electric vehicles

With the aim of improving roadside air quality, the government has various measures to actively promote the wider use of electric vehicles and replace diesel and petrol vehicles, including:

  • Continuing full exemption of First Registration Tax (FRT) for electric commercial vehicles, motorcycles and motor tricycles
  • Continuing FRT waiver of up to HKD 97,500 for electric private cars
  • Launching a ‘one-for-one replacement’ scheme to allow eligible private car owners to enjoy a higher FRT concession of up to HKD 250,000 if they buy a new electric private car and scrap their eligible private car.

All above concessions will remain in force until 31 March 2021.

Government enhances incentives to promote wider use of electric vehicles to improve roadside air quality

 

Source: ‘The 2018-19 Budget’; Speech by the Financial Secretary, the Hon Paul MP Chan moving the Second Reading of the Appropriation Bill 2018; Wednesday, 28 February 2018

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