Hong Kong’s Patent Box Tax Incentive Enacted
On 5 July 2024, the Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Ordinance 2024 came into force (“Amendment Ordinance”). It will be applied retroactively from the 2023/24 year of assessment.
The Amendment Ordinance enacts the patent box tax incentive, offering tax concessions for qualifying profits earned from eligible intellectual property (“IP”). Specifically, it offers a reduced tax rate of 5 per cent for qualifying profits generated in Hong Kong from eligible IP developed through research and development (“R&D”) activities.
Eligible IP encompasses patents, copyrighted software, and new plant variety rights. It is important to note that eligible IP must be developed by the taxpayers themselves. Where the R&D activities entail acquiring IP or outsourcing certain R&D operations, there may be a reduction in the proportion of qualifying profits under the concessionary regime.
Although not mandatory, copyrighted software, in particular, may be registered legally either in Hong Kong or under another jurisdiction. Nevertheless, the copyrighted software should fall within an appropriate framework of legal protection. In respect of other types of eligible IP, i.e., patents and new plant variety rights, entities must secure local registration to qualify for the concession. This requirement shall take effect after a two-year grace period.
The patent box tax initiative signifies a notable step towards boosting R&D efforts and fostering IP creation in Hong Kong. Its scope extends beyond high-tech fields, potentially benefitting a wide array of businesses. As a result, Hong Kong’s position as a leading regional IP trading centre will be strengthened.
Fresh Round of Initiatives Spurs Foreign Investment in China’s Key Sectors
On 26 June 2024, a state-level executive meeting was held in China to discuss the utilisation of foreign capital. The meeting underscored the need to ramp up efforts to attract, utilise, and secure foreign investment.
Chinese authorities have emphasised the pivotal role played by foreign-invested enterprises in establishing a new development framework. It is essential to intensify efforts to attract and utilise foreign investment more efficiently. Restrictions on foreign investment access should be eliminated in the manufacturing sector to promote a level playing field. Additionally, a new round of pilot initiatives will be introduced to expand the service sector’s opening-up. Furthermore, the government will enhance policy implementation to facilitate the participation of both domestic and foreign enterprises in an extensive equipment upgrade, government procurement, and investment on a non-discriminatory basis.
On a related front, the meeting also highlighted the importance of improving investment facilitation, refining foreign investment policies in the fields of pharmaceuticals and medical devices, consolidating modes of bonded maintenance, and further bolstering the service guarantee mechanism. In addition, the development of the “Invest in China” brand shall take centre stage, as well as the revision and issuance of an updated Catalogue of Encouraged Industries for Foreign Investment. Immigration procedures will also be streamlined to make it easier for foreign personnel to reside and work in China.
China continues to boast the world’s largest market with exceptional growth potential. The global economic powerhouse is poised to drive substantial demand in advanced manufacturing and new urbanisation, while also leading the way in shaping new consumption trends.
Duty-Free Limit Raised for Mainland Visitors to Hong Kong
On 28 June 2024, China’s Ministry of Commerce (“MOC”) announced plans to raise the duty-free allowance for visitors from mainland China entering Hong Kong.
Although the city does not impose tariffs on most imports and exports, goods purchased locally are subject to taxes when brought back to the Mainland if their value exceeds the duty-free allowance. At present, visitors are required to pay a tax ranging from 13 to 50 per cent on purchases made outside the Mainland that exceed RMB 5,000.
The duty-free allowance for luggage items brought into the Mainland from Hong Kong is set to increase from RMB 5,000 to RMB 12,000. Moreover, the additional RMB 3,000 allowance for duty-free goods purchased at stores located at port-entry points shall remain in place. This brings the overall duty-free limit to RMB 15,000.
The new duty-free quota came into effect at the six land ports, namely Lo Wu, Futian (Lok Ma Chau Spur Line), Shenzhen Bay, West Kowloon Station, and the Hong Kong-Zhuhai-Macao Bridge, on 1 July 2024. It will be extended to all other ports on 1 August 2024.
The new measure is poised to have a pronounced positive effect on Hong Kong’s tourist numbers and footfall to shops, thereby bolstering the local economy. It is slated to generate up to HKD 17.6 billion in annual spending for Hong Kong, contributing as much as HKD 5.4 billion to its economy. Further, the move is set to provide greater purchasing flexibility for mainland visitors.
China Drafts New Rules to Bolster Cross-Border E-Commerce
China’s MOC, along with eight other departments, has issued new guidelines to enhance cross-border e-commerce export volumes and support the development of overseas warehouses. The guidelines encompass several key areas, such as ramping up financial assistance, cultivating cross-border e-commerce businesses, improving infrastructure and logistic systems, streamlining rules and procedures, and strengthening oversight.
The rapid emergence of e-commerce giants in China has generated new growth opportunities for players previously geared towards domestic consumption. Newcomers can now expand their reach and tap into the booming e-commerce sector. This shift enables them to leverage the gigantic online consumer base and compete on a global scale.
The MOC and other government departments are committed to widening financial channels to facilitate companies’ entry into the e-commerce sector and, ultimately, help them “go global”.
According to the MOC’s spokesperson, cross-border e-commerce has become a crucial driver behind the growth of China’s foreign trade. In the past five years, the sector has expanded more than tenfold, significantly boosting China’s trade dynamics.
In the first quarter of 2024, China’s cross-border e-commerce trade totalled RMB 577.6 billion. This marks a 9.6 per cent increase compared to the previous year. Exports accounted for RMB 448 billion, reflecting a growth rate of 14 per cent.
Currently, China hosts over 120,000 cross-border e-commerce companies and over 1,000 e-commerce industrial parks. In addition, there are more than 2,500 warehouses located abroad. Together, they span more than 30 million square metres in area.
Digital Yuan e-CNY Pilot Initiative Scaled Up
The Hong Kong Monetary Authority (“HKMA”) and the People’s Bank of China (“PBC”) have made significant strides in advancing the e-CNY pilot programme for cross-boundary payments. Specifically, they have broadened the programme’s scope in Hong Kong, making it easier for residents to set up and use e-CNY wallets. Users will be able to top up their e-CNY wallets via the Faster Payment System (“FPS”).
The PBC’s “three connection, three facilitation” initiative, unveiled earlier this year, entails widening the scope of the pilot as one of its six measures. E-CNY wallet holders in Hong Kong can now easily register for the service using their mobile phone numbers.
In their current iteration, the e-CNY wallets are designed for cross-boundary payments and do not yet support person-to-person transfers. Wallets can be topped up through the FPS at 17 retail banks in Hong Kong. Apart from the Guangdong-Hong Kong-Macao Greater Bay Area, the digital yuan is also accepted in other designated pilot areas across mainland China.
According to the Chief Executive of the HKMA, Eddie Yue, the expansion of the e-CNY pilot in Hong Kong, coupled with the operational advantages of the FPS, such as round-the-clock service and instant transfers, now allows users to replenish their e-CNY wallets from anywhere, at any time without the need for a Mainland bank account. In addition, Yue emphasised the continuation of collaboration with the PBC to enhance wallet functionalities accessible to Hong Kong residents, as well as the intensification of efforts to promote e-CNY adoption among more retail merchants in both regions.
Hong Kong to Implement New Mechanism to Review Minimum Wage Rate
Hong Kong has accepted amendments proposed by its Minimum Wage Commission to refine the statutory minimum wage review mechanism.
The key amendments are as follows:
- The review of the statutory minimum wage rate will shift from a biennial to an annual schedule. The revised schedule will ensure that the minimum wage rate more accurately reflects ongoing socioeconomic shifts. Thus, this will provide better income protection for the grassroots workforce.
- Coming into effect on 1 May 2026, a new formula will be introduced to calculate the minimum wage adjustment rate. The new formula will take into account both inflation, as measured by the Consumer Price Index, and the “sharing economic prosperity” factor based on the growth rate of real GDP.
The new formula guarantees that the adjustment rate will not fall below the inflation rate, thereby protecting the purchasing power of low-wage workers. Further, to allow increases in the rate during periods of strong economic performance, GDP growth in the most recent year will be measured against that over the last ten years.
Where the new formula renders a negative numerical outcome, the minimum wage rate for that year will be maintained at its current level. This means that the rate will either increase or remain unchanged, and not be reduced.
On 5 June 2024, the commission initiated the second stage of the consultation to gather additional public feedback on improving the assessment mechanism. The first stage of the consultation was concluded earlier in April this year. During the second stage, the commission aims to prioritise engaging with the public and stakeholder organisations, and garnering their opinions. Upon completion of the consultation, the commission will consolidate and review the feedback to develop further recommendations.
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