Hong Kong to enhance existing tax concessions for maritime service industry and introduce a new half-rate tax concessionary regime for physical commodity traders

A recent briefing paper submitted by the Transport and Logistics Bureau to the Legislative Council Panel on Economic Development indicates that legislation for the captioned initiatives is to be introduced.

Maritime service industry

The proposed enhancements to the existing tax concessions for maritime service industry include:

1. Relaxing the definition for ship leasing to cover short-term leases
2. Introducing an additional option of a 15% concessionary tax rate for enterprises that are subject to the tax reform package (commonly referred to as “BEPS 2.0”) of the Organization for Economic Co-operation and Development (This option is aimed at easing their compliance costs for BEPS 2.0)
3. Introducing tax deduction for acquisition costs of ships held under operating lease
4. Relaxing deduction rules for interest incurred to finance acquisition of ships

Physical commodity traders

The government proposes introducing a half-rate profits tax concession (i.e. 8.25%) for assessable profits derived by qualifying physical commodity traders from a qualifying physical commodity trading activity. In-scope enterprises for BEPS 2.0 would also have an option to be taxed at 15% rather than the 8.25% concessionary tax rate.

In addition to the general conditions for preferential tax regimes, the eligibility for the new tax regime is subject to specific terms including (i) the minimum annual business turnover requirement; (ii) minimum requirements on the use of Hong Kong maritime services; and (iii) economic substance requirements.

The above measures, applying to the year of assessment 2025/26 onwards so as to be in alignment with the implementation timetable of BEPS 2.0 when enacted, are expected to be introduced into the Legislative Council within the first half of 2026.

Clients who are interested to explore how they can benefit from these proposed measures can contact their tax executive.