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The Hong Kong SAR Government (the Government) announced the Hong Kong Budget 2026-27 (the Budget), reporting a consolidated fiscal surplus of HK$2.9 billion for 2025-26 – a significant turnaround from the originally forecast HK$67 billion deficit. This year’s Budget is themed “Driving High-quality, Inclusive Growth with Innovation and Finance”. Ernst & Young Tax Services Limited (EY) notes that Hong Kong’s economy remains resilient. Industries across sectors are undertaking proactive preparation with an open attitude to lay a solid foundation for embracing various emerging opportunities.
Jasmine Lee, EY Hong Kong and Macau Managing Partner, says: “We welcome the Budget for actively aligning with the National 15th Five-Year Plan and to placing Hong Kong at the starting point of its own five-year blueprint. This will support the city’s integration with national development, strengthen its position as a global financial, shipping and trade center, and advance its development as an innovation and technology hub attracting top talent. A clear strategic roadmap will further reinforce Hong Kong’s competitive edge and future growth.”
Lee continues: “Hong Kong’s estimated consolidated fiscal surplus is HK$2.9 billion for 2025-26 and a surplus position is projected for the next five years. It reflects the city’s solid economic recovery and the Government’s sustained commitment to fiscal discipline. To maintain this momentum, it remains important to balance the benefit of the citizens at large with targeted support and long-term economic development, including through prudent debt issuance.
The EY team is pleased to see the Government incorporating our earlier recommendations and further strengthening its supportive measures, supporting both social wellbeing and Hong Kong’s longer-term competitiveness.”
Optimizing tax deduction arrangements for research and development (R&D) and intellectual property (IP) related expenditures
Wilson Cheng, EY Hong Kong and Macau Tax Leader, says: “The Government plans to introduce an amendment bill within 2026 on tax deduction arrangements for capital expenditure incurred for purchasing IP or the rights to use IP. The Government is also working on revisiting and optimizing the tax arrangements for R&D expenditures. These arrangements represent an important step toward strengthening collaboration among industry, academia and the research community. In particular, we welcome the Government’s acceptance of our recommendation to revisit the existing tax treatment of R&D expenditures. It will help facilitate cross boundary scientific cooperation, promote technology transfer and support the development of emerging and future industries.”
Clear, competitive and innovation oriented incentive mechanisms are often critical in attracting R&D based and IP rich enterprises to establish and scale their operations. To further strengthen Hong Kong’s position as an international innovation and technology hub, EY encourages the Government to consider designing tax incentives within the frameworks of the Qualifying Refundable Tax Credit and Substance Based Tax Incentives, so that Hong Kong’s tax regime becomes more attractive to multinational enterprise groups that are in the scope of the global minimum tax regime.
Cheng says: “We look forward to ongoing dialogue with the Government as this review progresses, and to contributing constructively to the incentives that reinforce Hong Kong’s competitiveness as a center for innovation and IP commercialization.”
Strengthening Hong Kong as an international asset and wealth management center
Karina Wong, EY1 Greater China Private Tax Co-leader and EY Greater China Family Enterprise Leader, says: “We welcome the Government’s commitment to implementing the enhanced tax regime for family offices and funds within the first half of 2026. The expansion of qualifying investments to include digital assets, precious metals and specified commodities will further strengthen Hong Kong’s position as a leading international asset and wealth management center. We expect offering tax incentives for eligible institutions conducting gold trading and settlement in Hong Kong will help capture the business opportunities in view of the latest gold market developments.”
To support the Government’s vision of developing Hong Kong into a global hub for premium art trading, EY encourages the authorities to continue conducting regular reviews of the qualifying investment scope and consider extending tax concessions to cover premium art, collectibles and artefacts. Such an enhancement would better reflect global family office investment trends and reinforce Hong Kong’s role as an international art trading and cultural exchange hub.
Tax regime updates to align with international standards
The Budget proposes relaxing the requirements for intra-group stamp duty relief and expanding the scope of eligible associated corporations, helping to reduce transaction costs and enhance the efficiency of corporate reorganizations. The Government also plans to introduce the legislative amendments within the year, with immediate effect for instruments executed from today, providing taxpayers with clearer guidance and greater certainty.
The Government is taking steps to modernize Hong Kong’s tax framework, including plans to amend the Inland Revenue Ordinance to implement the OECD’s Crypto Asset Reporting Framework and the updated Common Reporting Standard over the next two years. These enhancements will help Hong Kong keep pace with global transparency developments while preserving its status as a trusted international financial center.
Paul Ho, EY1 Financial Services Tax Leader for Hong Kong, says: “We welcome the Government’s positive response to EY recommendations to review and refine Hong Kong’s tax legislation, ensuring the city remains competitive while continuing to meet international tax cooperation standards. This reflects the Government’s commitment to developing a modern, competitive and internationally aligned tax regime. As policy development progresses, we believe it remains important to enhance the predictability and operational efficiency of the tax system to further strengthen Hong Kong’s overall attractiveness.”
Ho also notes: “The Government is formulating a package of incentive measures to attract strategic enterprises to the Northern Metropolis, as outlined in last year’s Policy Address. The preliminary framework covers land allocation, financial support and preferential tax rates such as a half rate or 5% tax rate. These measures will help draw high value, innovation driven enterprises to Hong Kong, supporting economic growth and job creation.”
Maintain Hong Kong’s comprehensive competitiveness through tax incentives
The Budget proposes a number of new tax incentives and initiatives to revisit existing ones to maintain Hong Kong’s comprehensive competitiveness, which includes offering tax incentives for eligible institutions conducting gold trading and settlement in Hong Kong, providing tax certainty to Corporate Treasury Centers through a pre-approval mechanism, enhancing the tax arrangement for R&D expenditures and capital expenditure incurred on purchasing IP or the rights to use the IP, promoting Hong Kong as an international maritime center as well as tax incentives to attract enterprises and investment.
Ricky Tam, EY1 Tax Services Partner, adds: “We agree that targeted tax concessions can help Hong Kong cultivate emerging sectors and strengthen industries where the city already holds a competitive edge. In addition to proposing tax incentives for gold trading and settlement and introducing an 8.25% tax concession for eligible commodity traders, enhancements to the concessionary regimes for corporate treasury centers, R&D and IP cost deductions and the maritime services sector will further support Hong Kong’s development as a diversified international business hub. These initiatives can attract targeted strategic enterprises to relocate more functions to Hong Kong and establish regional or global headquarters, bringing new investment and creating local employment.”
Tam adds: “To sustain this momentum, EY encourages the Government to introduce a dedicated tax incentive for regional headquarters and to allocate additional resources to expand Hong Kong’s tax treaty network. A broader treaty network and a clear headquarters regime would provide greater certainty for multinational groups and reinforce Hong Kong’s competitiveness as a center for global commerce and investment.”
Lee concludes: “We remain optimistic about Hong Kong’s outlook and welcome the Government’s commitment to upholding both the ‘user pays’ principle and the ‘affordable users pay’ principle. These approaches help ensure resources are allocated efficiently while maintaining fairness. We also agree with the Government’s approach to gradually replace short-term bonds with long-term ones to reduce short-term refinancing needs and broaden bond product choice. When applied alongside forward-looking policies and prudent investment, Hong Kong is empowered to capture emerging opportunities and reinforce the foundations for sustainable, high-quality growth.”
- Ernst & Young Tax Services Limited
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