Global Tax Alert | 7 March 2014
Hong Kong announces 2014-15 Budget
Hong Kong Financial Secretary John Tsang delivered the 2014-15 budget (Budget) speech on 26 February 2014. In the Budget, the tax rates for the major tax categories, including salaries tax, profits tax, property tax and stamp duty remain the same and there is no agenda to introduce new taxes.
It is indicated that an industry consultation has been completed regarding a prior year’s initiative to allow private equity funds to apply a tax exemption for offshore funds.1 Legislative work will begin in the near future.
Financial assistance and hardware and software support to enterprises engaging in innovation and technology are reflected in the introduction of a new program in the Budget, which will provide funding support for research and development activities of private sector companies, irrespective of size, with the funding ceiling for each project raised from approximately US$770,000 to 1.3million (HK$6 million to HK$10 million). While the recipient company must bear at least half of the cost, it may retain all the intellectual property rights of the project.
Currently multinational groups may not view Hong Kong as being a preferred location for a regional treasury company because, under the current provisions of the Inland Revenue Ordinance (IRO), interest income derived by a treasury company could be taxable in Hong Kong, while interest paid by the treasury company to overseas group companies that are not financial institutions would not generally be tax deductible. In an effort to attract more treasury functions to Hong Kong, the Budget includes the appointment of a task force to i) review the requirements under the IRO for interest deductions for corporate treasury activities, and ii) clarify the criteria for such deductions.
The Financial Secretary also indicated that, to prevent revenue loss, the Inland Revenue would step up tax enforcement and make better use of information technology to combat tax evasion and avoidance.
1. For more details, see EY Global Tax Alert, Hong Kong Financial Services Development Council issues proposal on private equity funds, dated 26 December 2013.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
- • Tracy Ho
+852 2846 9065
- • Florence Chan (Financial Services)
+852 2849 9228
Ernst & Young LLP, Hong Kong Desk, New York
- • Connie Chan
+1 212 773 2661
Ernst & Young LLP, Asia Pacific Business Group, New York
- • Chris Finnerty
+1 212 773 7479
- • Kaz Parsch
+1 212 773 7201
- • Bee-Khun Yap
+1 212 773 1816
EYG no. CM4233