Hetao Shenzhen-Hong Kong Sci-tech Zone Introduces Preferential Individual Income Tax Policy
The Shenzhen Finance Bureau and Taxation Bureau have jointly introduced measures to enact a preferential individual income tax policy for Hong Kong residents in the Shenzhen Park of the Hetao Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone (“Hetao Zone”). On 10 April 2024, the Measures for the Implementation of Preferential Individual Income Tax Policy in the Shenzhen Park of the Hetao Zone came into force and shall remain in effect for one year.
The Hetao Zone, which covers 3.89 square kilometres, comprises two parks. The park in Shenzhen spans 3.02 square kilometres, while the park located in Hong Kong, which is still under construction, will occupy 0.87 square kilometres.
The policy provides that Hong Kong residents working in the Shenzhen Park will be exempt from paying individual income tax on the portion that exceeds their tax liability in Hong Kong.
Qualifying taxpayers are required to submit the relevant computations in respect of individual income tax deductions to the Futian District Taxation Bureau, which is responsible for processing tax refunds. Comprehensive guidance regarding the application process, documentation requirements, and procedural steps is delineated in the guidelines issued by the Futian District Taxation Bureau.
The key aims of the policy are to balance tax obligations burdened by Hong Kong residents and draw more individuals to leverage the various business and job opportunities in the Hetao Zone, thereby supporting the economic growth in the region. The main recipients of this policy are Hong Kong residents working in the Shenzhen Park of the Hetao Zone. The policy extends preferential treatment to different sources of income generated in the Shenzhen Park. These include wages, royalties, franchise fees, business earnings, and subsidy income from eligible talent schemes approved by the district-level government in Futian District, Shenzhen.
China Issues Preferential Tax Policies to Bolster Manufacturing Sector
On 25 April 2024, China’s Ministry of Finance and State Taxation Administration jointly released the Guidelines on China’s Key Preferential Tax Policies for the Development of the Manufacturing Sector. The guidelines encompass 31 preferential tax policies, each detailing the eligibility criteria, policy details, conditions, application requirements and procedures.
Some of the key preferential tax policies are briefly outlined as follows:
– Preferential corporate income tax (“CIT”) policies
High-tech manufacturing enterprises identified as requiring significant state support may qualify for a reduced CIT rate of 15 per cent, compared to the standard national CIT rate of 25 per cent.
The concessionary CIT rate of 15 per cent is also applicable to certain companies operating in designated areas and development zones, such as the Hetao Zone, Hainan Free Trade Port, Lingang New Area, and Nansha New Area.
– Pre-tax super deduction on research and development (“R&D”) expenses
Eligible enterprises can claim a 200 per cent pre-tax super deduction on expenses related to R&D activities that do not result in the creation of intangible assets.
– Preferential value-added tax (“VAT”) policies
Eligible manufacturing enterprises can enjoy VAT exemption, such as those engaged in the production, wholesale, and retail of organic fertiliser products and drip irrigation pipe products.
China Extends Visa-free Travel to Six European Countries
China is extending its hospitality to international travellers from six additional countries by widening its visa-free policy. The six countries newly added to the list are Austria, Belgium, Hungary, Ireland, Luxembourg, and Switzerland. Specifically, the expanded policy permits regular passport holders from these nations to visit China visa-free for up to 15 days – for the purposes of business, tourism, visiting family and friends, and transit – between 14 March and 30 November 2024.
China has already inked a slew of agreements with other countries on visa-free travel arrangements. On 26 July 2023, China reinstated its 15-day visa-free policy for travellers from Brunei and Singapore. The policy for Singapore was later extended to 30 days, starting from February 2024. On 24 November 2023, China broadened the policy to include France, Germany, Italy, Malaysia, the Netherlands, and Spain.
The move has been hailed as a significant milestone by beneficiaries of the visa-free policy. Just a fortnight after the policy came into force, Luxembourg’s Chinese Language and Culture Centre arranged a study trip to China over the Easter break in April. According to Luxembourg’s deputy prime minister, the streamlining and facilitation brought about by visa-free travel will no doubt help boost business exchanges between the two sides.
In addition, China is actively tackling various challenges faced by foreign travellers. Such efforts highlight China’s dedication to furthering its openness to the world. Many foreign visitors have encountered challenges with China’s mobile payment services due to issues relating to foreign bank card acceptance and identity authentication.
Hong Kong to Replace “418” Rule Under Employment Ordinance
Hong Kong will be amending its Employment Ordinance. The existing “418” rule is set to be replaced by the new “468” rule. The move is aimed at providing better safeguarding for the local part-time, temporary, and casual workforce.
The current “418” rule provides that employees working a minimum of 18 hours per week for four consecutive weeks for the same employer are considered to be under a “continuous contract” of employment. Therefore, they are deemed eligible for various benefits, such as statutory holiday, sick leave, maternity or paternity pay as well as long-service and severance payments.
According to Hong Kong’s Labour Advisory Board, the “418” rule shall be eased by adopting a cumulative approach to working hours over four consecutive weeks and setting the threshold at 68 hours. This means that employees working for the same employer and totalling 68 hours or more over a consecutive four-week period will be deemed to be under a “continuous contract” of employment.
The proposed amendment is still pending implementation. A report will be presented to the Legislative Council. Subsequently, upon completion of drafting, an Amendment Bill will be introduced for scrutiny in the Legislative Council.
Employers are well advised to determine which employees will qualify under the new proposed “468” rule before the amendment comes into force. The legislative change is likely to drive up costs for employers, particularly in industries susceptible to fluctuating demand and seasonal variations, such as catering and hospitality that rely heavily on a part-time workforce.
China Unveils Fast-track Financing Channel for Tech Enterprises
The China Securities Regulatory Commission has recently released the Sixteen Measures for the Capital Market to Promote the High-level Development of Technology-based Enterprises (“Measures”). The Measures aim to achieve dual objectives. On the one hand, they dovetail with the new National Nine Articles, which are designed to accelerate the stable and healthy development of the capital market. On the other hand, they are conducive to efforts in supporting scientific and technological innovation.
The Measures introduce a host of initiatives, encompassing key areas including listing and financing, mergers and acquisitions, as well as restructuring. Notably, they establish a dedicated fast track for tech companies. Under the provisions, enterprises demonstrating groundbreaking advancements in core technologies will be granted priority access to capital market financing.
Additionally, the Measures facilitate equity financing for tech enterprises. Specifically, they assist such companies in pursuing initial public offerings, refinancing, mergers and acquisitions, restructuring, and expanding into overseas capital markets. Furthermore, private equity and venture capital funds are increasingly encouraged to invest in scientific and technological innovation. Equity incentive mechanisms as well as implementation protocols will also be enhanced.
On a related front, the Measures aim to ramp up support within the bond market. The emphasis is on bond financing for enterprises operating in strategic emerging industries to bolster their financial capabilities.
Hong Kong’s Economic Growth Defies Forecasts
In the initial quarter of this year, Hong Kong’s economy surged beyond analysts’ projections. According to figures released by the city’s Census and Statistics Department, Hong Kong’s GDP increased by 2.7 per cent in the first quarter. The recorded growth exceeded economists’ forecast of 0.8 per cent from a Bloomberg survey. This is a solid, incipient indication that Hong Kong’s recovery from the pandemic is steadily gaining traction.
Renewed optimism has been expressed about the positive momentum of Hong Kong’s recovery. The robust growth rate sets Hong Kong’s economy on a trajectory to achieve the official growth target of 2.5 to 3.5 per cent for 2024. One of the key factors contributing to this upturn is a resurgence in the stock market.
On a separate front, the lifting of home-buying restrictions led to a spike in new home sales, propelling sales to their highest level in 11 years.
In the first quarter, private consumption climbed by 1 per cent compared to the same period last year. The uptick follows a 3.5 per cent year-on-year rise in the fourth quarter of 2023. Meanwhile, government expenditure declined by 3 per cent year-on-year in the final three months of 2023. The increase in household income alongside government efforts are expected to further bolster private consumption.
In addition, over 11 million people visited Hong Kong in the first quarter. This figure represents more than double the number of visitors from the corresponding period last year.
Exports experienced growth, as measured by the national accounts, after previous underwhelming performances. They surged by 6.7 per cent, while imports saw an increase of 3.2 per cent year-on-year in the first quarter.
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