Hong Kong pursues a diversified economy

Hong Kong Chief Executive Carrie Lam proposed a number of new tax related measures in presenting her second policy address to the Legislative Council on 10 October 2018, as well as providing updates on measures proposed in the 2018-2019 budget.

Lam said Hong Kong must pursue a diversified economy to enhance its capability to withstand external shocks. The maritime industry was identified as a major pillar in supporting the development of Hong Kong’s trade and logistics industries in line with Mainland China’s Belt and Road Initiative and the proposal to develop the Greater Bay Area.

To strengthen Hong Kong as a high value-added maritime services centre and trans-shipment hub in the Asia-Pacific region, she proposed tax concessions to attract more ship leasing companies to set up operations and expand their businesses in Hong Kong as well as tax reliefs to promote the development of marine insurance and the underwriting of specialty risks in Hong Kong.

Having introduced the new open-ended fund company regime in July, the Hong Kong government is looking to enhance the legal framework for the funds industry. It is now consulting on a limited partnership regime for private equity funds. It will also review the existing tax concession arrangement for the fund industry to ensure it complies with international requirements on tax co-operation.

Lam said that the government intends to continue expanding its double tax treaty network. Hong Kong has currently concluded treaties with 40 tax jurisdictions and plans to bring the total to over 50 over the next few years.

Lam reported that Inland Amendment (No.3) Bill 2018 to provide enhanced tax deductions for qualifying R&D expenditure incurred by local enterprises has now entered the final stage in the Legislative Council and will benefit enterprises for their qualifying R&D expenditure starting from 2018-19. The bill offers a 300% tax deduction for the first HK$2 million of qualified R&D expenditure, and 200% for sums above.

Lam said the first batch of virtual banking licences would be issued by the end of 2018 or early 2019. Her administration would also allocate HK$28 billion to further promote innovation and technology (I&T) in Hong Kong. The funds will be used to expedite re-industrialisation, promote research and development in universities, tap into the latest innovation and technology to revamp e-government services, and encourage innovation in society.

Under Lam’s latest proposals, HK$2 billion will be used to launch a Re-industrialisation Funding Scheme to subsidize manufacturers, with the government matching their investment, to set up smart production lines and encourage industries to engage in high-end production through the application of smart technologies and production processes.

Another HK$2 billion will also be given to Hong Kong Science and Technology Parks Corporation (HKSTPC) to identify suitable land in industrial estates for the establishment of manufacturing facilities for the advanced manufacturing sector.

In addition, HK$20 billion will be injected into the Research Endowment Fund of the Research Grants Council under the University Grants Committee for a more stable research funding to help attract and retain talent.

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