Government urged to offer profits tax concession to qualified startups and tax relief to angel investors

The move is sure to encourage increased levels of private investment, said EY.

Accounting and professional services firm EY proposed the introduction of a profits tax concession for qualified high-new technology and creative startups as well as an income tax relief package for angel investors so as to encourage higher levels of private sector investment. 

“Under the proposed profits tax concession, a newly established company that meets the qualifying conditions would enjoy a concessionary tax rate of 8.25% for the first three consecutive years after the company has commenced to derive assessable profits,” said EY Hong Kong and Macau Managing Partner Agnes Chan.

Under the recommended income tax relief package for angel investors, individual taxpayers can commit a minimum of $500,000 in a qualifying start-up which would then enjoy a 50% tax deduction of their investment at the end of a three-year period subject to a cap of $1m for each assessment year. 

“We believe that the proposed measures can encourage more private investors, especially business veterans, to invest in start-ups that have high growth potential, and help start-ups overcome difficulties in accessing capital. Furthermore, the start-up companies may also benefit from the guidance and mentorship provided by the angel investors,” Chan explained.

EY also proposed an extension of tax deduction to sub-contracted R&D expenditures as it noted that the tax regimes of advanced economies like Singapore and UK allow subcontracted R&D activities to qualify for super tax deductions to a certain extent.

This comes as subcontracting out R&D activities under certain cost-sharing agreements may be common in a group context and also necessary as Hong Kong may be lacking in the required manpower equipped with the right skills and expertise to conduct certain R&D activities.