The tax rate for the first $2m of profits will be reduced to 8.25%.
Inland Revenue (No. 3) Ordinance 2018 was gazetted to implement the two-tiered profits tax rates regime from April 1, according to a government press release.
The new tax regime slashes the tax rate for the first $2m of company profits to 8.25%. Profits above that will be subjected to 16.25% tax rate.
The move aims to reduce the tax burden on businesses especially on small and medium enterprises and startups. “A tax-paying corporation or unincorporated business could save up to $165,000 and $150,000 each year,” the press release added.
For unincorporated businesses like partnerships and sole proprietorships, the two-tiered tax rates will correspondingly be set at 7.5% and 15%. Assuming 20% of the tax-paying enterprises are connected enterprises, the tax revenue forgone due to the implementation of the initiative will be about $5.8b yearly, or around 4% of the total profits tax received in 2016-17.
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