The Inland Revenue (Amendment) (No. 7) Ordinance 2018 was gazetted today.
The amendment implements the 2017 Policy Address initiative enhancing the tax deduction for expenditure incurred by enterprises on research and development (R&D) in Hong Kong.
The Innovation & Technology Commission said the move aims to encourage more enterprises to conduct R&D locally to promote technological innovation and economic development, and to groom local R&D talent.
It also aims to encourage more R&D investment from private enterprises to reverse the ratio of public versus private sector R&D expenditure to private-led, which the commission said is more sustainable.
The amendment classifies R&D spending into Type A expenditures which qualify for 100% deduction and Type B which qualify for enhanced tax deduction.
For Type B expenditures, the deduction is 300% for the first $2 million of the aggregate amount of payments made to designated local research institutions for qualifying R&D activities, and enterprises’ expenditures for in-house qualifying R&D, and 200% for the remaining amount, with no cap on the enhanced tax deduction amount.
The arrangement is applicable to R&D expenditures incurred by enterprises on April 1 and thereafter.
The amendment also empowers the Commissioner for Innovation & Technology to designate any university or college in Hong Kong, or any institute, association, organisation or corporation that undertakes qualifying R&D activities in the city, as a designated local research institution for tax deduction purposes.
R&D service providers which offer such services in Hong Kong and are competent to provide the service may apply to the Innovation & Technology Commission.
Detailed conditions and application procedures will be available on the commission’s webpage later.