February 25, 2022
Hong Kong announces 2022-23 budget
On 23 February 2022, the Financial Secretary (FS) of Hong Kong announced the 2022/23 Hong Kong Budget (Budget). This Alert summarizes the key features of the Budget.
BEPS 2.0 proposals – implementation in Hong Kong
The FS indicated that a legislative proposal will be submitted in the second half of 2022 to implement the global minimum tax rate and other relevant requirements under the OECD's[i] BEPS[ii] 2.0 project from 2023 in accordance with the international consensus. It will only apply to multinational enterprise (MNE) groups with annual consolidated group revenue exceeding €750 million.
To protect Hong Kong's taxing rights and minimize the compliance burdens of in-scope MNE groups, the Hong Kong Government will also consider introducing a domestic minimum top-up tax (DMT) in Hong Kong starting from the year of assessment 2024/25 (i.e., financial year ended falling after 31 March 2024). The DMT will bring the jurisdictional effective tax rates of the Hong Kong constituent entities of an in-scope MNE group to the required minimum of 15%.
Meanwhile, the Hong Kong Government reaffirmed its commitment to preserve the simplicity, certainty and transparency of Hong Kong's tax regime, and to maintain the territorial source principle of taxation.
Proposed tax concessions for family offices set up in Hong Kong
To further enhance Hong Kong's tax attractiveness as a hub for asset and wealth management, the FS announced that an amendment bill will be introduced to provide tax concessions for qualifying family offices in Hong Kong. It is expected that the relevant tax concessions will come into effect in the year of assessment 2022/23 (i.e., financial year ended falling after 31 March 2022).
Proposed tax measures to enhance Hong Kong's position as an international maritime center
Currently, Hong Kong has legislation that provides a tax exemption or half-rate tax concession to ship leasing and marine insurance businesses. To further enhance Hong Kong's position as an international maritime center, the FS announced that similar tax concessions will be introduced in the first half of 2022 to cover other related sectors of the maritime industry, possibly including ship managers, agents and brokers. It is expected that the new tax incentives will require business substance in Hong Kong in accordance with international tax policy standards.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
Ernst & Young LLP (United States), Hong Kong Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago
1 Organisation for Economic Co-operation and Development.
2 Base Erosion and Profit Shifting.