Between December 2023 and March 2024, the HKSAR Government conducted a consultation on the Global Anti-Base Erosion (“GloBE”) Rules and the Hong Kong Minimum Top-up Tax (“HKMTT”).
Upon the conclusion of the consultation, Hong Kong’s Financial Services and the Treasury Bureau, in collaboration with the Inland Revenue Department, has recently published a Legislative Council (“LegCo”) Paper. The document recapitulates the input gathered from various stakeholders and presents the government’s feedback based on the findings.
Multinational enterprise (“MNE”) groups with an annual consolidated revenue exceeding EUR 750 million are subject to the GloBE Rules. The Rules are enforced to serve as a top-up tax mechanism, ensuring that profits in each of the MNE’s operating jurisdictions meet a minimum tax rate of 15 per cent.
The key points from the LegCo Paper are as follows:
- Revisions to the Inland Revenue Ordinance (“IRO”) are in the process of being finalised, with the bill expected to be presented before the LegCo by January 2025.
- The implementation of the Income Inclusion Rule and the HKMTT is scheduled for the fiscal year commencing on or after 1 January 2025; however, the introduction of the Undertaxed Profits Rule (“UTPR”) has been postponed until further notice.
- Following discussions with the Organisation for Economic Co-operation and Development, a definition of “Hong Kong resident entity” will be formulated for the general application of the IRO, rather than specifically catering for Pillar Two objectives. The new definition will come into force retroactively from 1 January 2024.
- A transitional UTPR safe harbour measure will be introduced to grant relief to those with an ultimate parent entity located outside Hong Kong.
- Investment and insurance investment entities will fall outside the scope of the HKMTT to uphold their tax neutrality status.
