November 2018 / Hong Kong

On 31 October 2018, the Inland Revenue (Amendment) (No. 4) Bill 2018 was passed by the Legislative Council. The new Ordinance gives effect to a concessionary tax measure proposed in the 2018-19 Budget (see Hong Kong-1, News 1 March 2018). Under the new arrangement, with effect from 1 April 2019, a taxpayer can claim tax deductions under salaries tax and personal assessment for the Voluntary Health Insurance Scheme (VHIS) premiums procured for the benefit of the taxpayer and all specified relatives (including the taxpayer's spouse and the children, parents, grandparents and siblings of the taxpayer's spouse). The annual tax ceiling of premiums for tax deduction is HKD 8,000 per insured person.

The Inland Revenue (Amendment) (No.7) Bill 2018 was gazetted by the government on 2 November 2018. By amending the Inland Revenue Ordinance, the Bill seeks to:

• align the tax treatment of financial instruments with their accounting treatment;
• allow the deduction of interest expenses payable to overseas export credit agencies;
• refine the provisions that implement the arrangement for automatic exchange of financial account information in tax matters (AEOI);
• avoid potential double non-taxation of income of visiting teachers and researchers arising from the introduction of tax exemption for teachers and researchers in tax agreements signed by Hong Kong; and
• revise the definition of the sibling relationship to cover some cases related to adopted persons in determining the eligibility for the dependent brother or dependent sister allowance.

The Amendment Bill will be introduced into the Legislative Council on 14 November 2018.

According to an update of 13 November 2018, published by the Hong Kong Inland Revenue Department, the first round of negotiations for a tax agreement between Estonia and Hong Kong is scheduled to take place from 19 to 23 November 2018. Further developments will be reported as they occur.

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.

The Inland Revenue (Amendment) (No.5) Bill 2018 was passed by the Legislative Council on 14 November 2018. It gives effect to three concessionary tax measures proposed in the 2018-19 Budget. These measures include, effective from the year of assessment 2018/19:

• allowing husband and wife the option of electing for personal assessment separately;
• allowing enterprises to claim a 100% tax deduction for capital expenditure incurred in procuring environmental protection installations in 1 year instead of over 5 years; and
• extending the scope of tax exemption for debt instruments under the Qualifying Debt Instrument Scheme.