November 14 2018

Inland Revenue (Amendment) (No.7) Ordinance 2018 gazetted – enhanced tax deductions for qualified R&D expenditures

Source: IBFD Tax Research Platform News

On 2 November 2018, the Inland Revenue (Amendment) (No.7) Ordinance 2018 (the Ordinance) was gazetted by the government to provide enhanced tax deductions for certain expenditures incurred by enterprises on research and development (R&D) activities carried on in Hong Kong.

Under the Ordinance, R&D expenditures are now classified into either "Type A expenditures" which qualify for 100% deduction or "Type B expenditures" which qualify for an enhanced tax deduction. The enhanced tax deduction for "Type B expenditures" is a two-tier deduction regime. The deduction is 300% for the first HKD 2 million of the aggregate amount of payments made to "designated local research institutions" for "qualifying R&D activities", and expenditures incurred by the enterprises for in-house qualifying R&D, and 200% for the remaining amount. There is no cap on the amount of enhanced tax deduction.

The arrangement is applicable to R&D expenditures incurred by enterprises on 1 April 2018 and thereafter.