Wednesday 22nd February 2023: Constrained by unfavourable financial headwinds and able to offer only a limited package of personal and corporate tax incentives in his annual budget proposals today, Hong Kong Financial Secretary Paul Chan nonetheless committed the Government to new legislation aimed at attracting more overseas businesses to register in Hong Kong.

Although he remained short on detail, Chan said the key objective would be to entice companies “to redomicile in Hong Kong”, adding that the city has enjoyed the competitive edge as a hub for multinational enterprises and as a headquarters economy.

“We will conduct consultation and submit legislative proposals in 2023‑24”, the Financial Secretary said. “We will introduce a mechanism to provide facilitation for companies domiciled overseas, particularly enterprises with a business focus in the Asia‑Pacific region, for re‑domiciliation to Hong Kong, so that these companies may utilise our favourable business environment and professional services.”

 

 

Otherwise, Chan today offered little to enhance the long-standing advantages of Hong Kong’s established tax regime, beyond the avoidance of any increases to profits tax rates currently starting at 8.5% and standard salaries tax rate at 15%. The limited concessions he did propose included a one-off rebate of 100% on personal and profits tax payments of up to HK$6,000.

Those rebates will be applied to tax levied for the 2022-23 fiscal year once individual Income Tax Returns or Profit Tax Returns are eventually filed.

Annual Business Registration fees, currently waived completely, will return to HK$2,000 from 1st April, alongside the existing Government Levy of HK$250.

Among the limited corporate beneficiaries of the planned tax adjustments announced today, the telecommunications, IT, tourism and wealth management sectors are all included. The Financial Secretary also said the preferential tax treatment already enjoyed by the aircraft leasing industry would be further enhanced to attract more operators into Hong Kong.

Thanks to the adverse impact on Government finances of sluggish stock markets and property markets, coupled with the high costs of anti-COVID work and associated relief packages, Hong Kong is facing what Chan expects to be its second-biggest budget deficit ever during the financial year about to close. At an anticipated HK$140 billion the shortfall will be lower only than the HK$233 billion recorded in 2021.

On a relatively narrow tax base, the resulting pressures on public finances have left the Government with little option other than to safeguard revenues as a matter of urgency. Chan said he expects the government will be left with a fiscal reserve of about HK$820 billion by the end of the current financial year, falling further to HK$763 billion, equivalent to 12 months of government expenditure, during 2024. It is then predicted to recover to HK$984 billion only by the end of March 2028, equivalent to approximately 14 months of government expenditure.

But while Chan addressed the importance of Hong Kong’s competition with neighbouring regions, he failed to propose potentially competitive measures such as profits-tax concessions for qualifying regional headquarters, claims for leased plant and machinery used within Great Bay Area (GBA), or enhanced R&D deductions for R&D activities carried out in GBA.