Hong Kong enacts 'patent box' tax concession

This include offering a 5% tax rate on qualifying profits from patents.

The Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Ordinance 2024 was officially gazetted on 5 July.

Effective immediately, the amendment introduces a "patent box" tax incentive aimed at boosting tax concessions for qualifying profits derived from eligible intellectual property (IP). 

The initiative allows eligible taxpayers to apply for incentives beginning from the 2023/24 assessment year.

Under the ordinance, eligible IP encompasses patents, copyrighted software, and new plant variety rights, whether registered locally or internationally. Profits derived from these IPs in Hong Kong will benefit from a concessional tax rate of 5%, markedly lower than the standard profits tax rate of 16.5%.

However, to qualify for these benefits, the IP must be developed internally by the taxpayer. If R&D involves acquiring IPs or outsourcing activities, the portion of profits eligible for the lower tax rate may be adjusted accordingly.

Moreover, enterprises must locally register their IPs within two years of the "patent box" tax incentive's implementation to avail themselves of the concession.

The Commerce and Economic Development Bureau said that this regime aims to incentivise increased R&D efforts and facilitate IP trading, bolstering Hong Kong's stature as a regional IP hub.

Separately, the government announced plans to conduct consultations on enhancing protections under the Copyright Ordinance, addressing emerging challenges from advancements in artificial intelligence technology.