Hong Kong Tax Alert: 9 January 2014

Provision of the Bill

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The amendments to the Inland Revenue Ordinance (IRO) proposed by the Bill include the following:

  • Clause 4 of the Bill amends section 14B of the IRO to allow authorized captive insurers as defined in section 23A of the IRO to be taxed, by an irrevocable election in writing, at one-half of the normal profits tax rate (i.e., 8.25%, being 50% of the current profits tax rate of 16.5%) in respect of their assessable profits derived from their business of insurance of offshore risks. 
  • Clause 6 amends section 23A of the IRO by setting out the formula for ascertaining the assessable profits derived from the business of insurance of offshore risks of an authorized captive insurer.  The formula is basically the same as that applicable for ascertaining the assessable profits derived from the business of reinsurance of offshore risks of a professional reinsurer.
  • Clause 5 proposes certain consequential amendments to section 19CA of the IRO. Under the proposed amendments, section 19CA will work to the effect that losses derived from the business of insurance of offshore risks of an authorized captive insurer, which are offset against other profits of the insurer which are taxed at the normal rate, will have to be scaled down by a factor of 1/2.  Any unabsorbed loss will not be scaled down and will be available to carry forward.

    As a corollary, any losses suffered by the authorized captive insurer in its other business which are taxed at the normal rate will need to be multiplied by a factor of 2 to the extent that such losses are used to offset against profits of the authorized captive insurer which are taxed at the concessionary tax rate.  Any unabsorbed loss will be available to carry forward and will not be subject to multiplication. 
  • Clause 3 proposes that the profits tax concession applies in relation to the year of assessment commencing on 1 April 2013 and to all subsequent years of assessment.