How will the proposed two-tiered profits tax regime boost the operations of small enterprises?

The Profits Tax Bill will be formally introduced to the Legislative Council on January 10.

Hong Kong is pushing for a two-tiered profits tax regime with the gazetting of the Profits Tax bill last December 29 in an effort to foster economic development whilst maintaining a simple tax system.

The two-tiered profit rate will be applicable to both corporations and unincorporated business. Tax rates for corporations with profits of first $2m are charged 8.25% whilst profits over $2m are charged at the existing rate of 16.5%.

For unincorporated businesses, the first $2m profits earned will be taxed at half the current tax rate (ie. 7.5%) whilst the remaining profits above $2m are charged at the existing 15% rate. 

KPMG notes that if the new tax regime receives the approval of the Legislative Council, it will alleviate the overall tax burden on small and medium enterprises and allow enterprises to redirect their savings into upgrading their operations.

It will also enable social enterprises to pursue their social objectives and boost Hong Kong’s status as the preferred investment jurisdiction in the global arena. 

“The Profits Tax bill is a welcome enhancement to small and medium enterprises in Hong Kong and to the Hong Kong tax system to maintain its position as Asia’s leading international business centre,” said KPMG in a press release. 

The Profits Tax Bill will be formally introduced to the Legislative Council on January 10.