Major upgrade for tax

Hong Kong is proving its ability to adapt to global tax standards despite economic uncertainty, according to speakers at the ACCA Hong Kong Virtual Tax Conference 2025. The Special Administrative Region (SAR) has launched several new initiatives, including a company re-domiciliation regime, patent box incentive and an e-filing system, to stay competitive in the global market.

In a fireside chat about Hong Kong’s latest tax developments, Benjamin Chan, commissioner of Inland Revenue, Inland Revenue Department (IRD), talked about the SAR’s compliance with the OECD’s BEPS 2.0 Pillar Two requirements.

‘Pillar Two operates on a “two-out-of-four” rule. If multinational enterprise (MNE) groups meet the €750m threshold in any two years within a four-year period, they’ll fall within the scope,’ said Chan. ‘Approximately 200 to 300 Hong Kong-headquartered MNE groups and 3,000 foreign MNE groups with Hong Kong operations will fall within its scope.’

Streamlined system

Recognising the potential compliance burden on affected enterprises, the IRD introduced a streamlined top-up tax return system, under which MNE groups will only need to file a single top-up tax return, rather than separate filings for the Income Inclusion Rule, Undertaxed Profits Rule and qualified domestic minimum top-up tax required in other jurisdictions.

‘For Hong Kong-headquartered groups, their top-up tax return will include the standardised GloBE Information Return (GIR), and we’ll handle all subsequent information exchange with other jurisdictions,’ Chan said.

Chan clarified that the IRD cannot accept GIR filings for fiscal year 2024. ‘The global minimum tax and Hong Kong minimum top-up tax are legally mandated to apply from 1 January 2025 in Hong Kong,’ he said. This position aligns with the IRD’s IT infrastructure timeline, with the Pillar Two portal set to launch notification functions in January 2026 and return filing capabilities in October 2026.

The implementation timeline has implications for filing strategies, according to Anita Tsang FCCA, adviser to ACCA’s tax sub-committee and partner of tax policy and knowledge management at KPMG China. ‘Hong Kong-headquartered MNEs that fall within scope need to carefully consider the most appropriate jurisdiction for filing their GIR,’ she advised.

Meanwhile, the government is considering several amendments to the current bill based on stakeholder feedback. One area under review is the general anti-avoidance rule. ‘Rather than using “one of the main purposes” as the test, we’re considering a more stringent “sole or dominant purpose” standard, similar to section 61A,’ said Chan. The department is also evaluating the appropriate assessment window and associated record-keeping requirements.

Opening doors

Building on these tax reforms, Hong Kong is launching the highly anticipated company re-domiciliation regime. ‘There are no minimum thresholds for capital, turnover or staff size for companies wanting to re-domicile to Hong Kong; it welcomes companies of all sizes,’ said Tsang, highlighting its competitiveness and flexibility.

While the regime itself is not tax-focused, it carries important implications for companies seeking to obtain the Certificate of Resident Status (CoR) in Hong Kong. Chan provided clarity on the issuance of a CoR during the 120-day transitional period when companies must complete their deregistration in their original jurisdictions.

‘When a company has redomiciled to Hong Kong and received a certificate of re-domiciliation, it is legally considered as a Hong Kong company and is accepted as a Hong Kong tax resident from that date,’ Chan explained. However, to avoid potential complications with double taxation treaty partners, the IRD will only issue the CoR after the completion of the deregistration process.

Companies can accelerate this timeline by submitting early proof of deregistration from their original jurisdictions. ‘Once we are satisfied that the deregistration process is completed, we can consider issuing the CoRs before the 120-day transitional period ends,’ said Chan.

Hong Kong’s new patent box tax incentive, effective from the year of assessment 2023/24, positions the city as a competitive jurisdiction for intellectual property (IP) development with its highly competitive 5% concessionary tax rate and comprehensive coverage across industries.

‘This is the first time we’ve introduced a 5% concessionary tax rate; most of our other preferential rates are 8.25%,’ said Chan. ‘Unlike other jurisdictions that employ tiered approaches, we have adopted a uniform rate for all qualifying income.’

The regime’s design aligns with the OECD’s BEPS Action 5 report’s nexus approach, encompassing the broadest possible range of IP assets, including patent, plant variety rights and copyrighted software. Hong Kong has deliberately kept the framework simple by avoiding additional requirements beyond the OECD guidelines, according to Chan.

The incentive is accessible to companies that meet the specified criteria and no pre-approval is required. ‘As long as they meet the legal requirements and provide the correct information in their tax filing, they can benefit from the concessionary tax rate, subject to our post-filing verification process,’ Chan explained.

Digital filing

On the digital front, the IRD is set to launch three key tax portals and implement mandatory e-filing requirements. Chan announced that the Business Tax Portal, Tax Representative Portal and Individual Tax Portal will go live in July 2025, with account registration commencing in April.

‘The initial phase of mandatory e-filing will be implemented for the 2025/26 profits tax returns, targeting in-scope MNE groups subject to top-up tax requirements,’ said Chan. He highlighted that the IRD’s data preparation tool now supports both Word and Excel files for converting financial statements into the required iXBRL format.

Tsang underscored the importance of early preparation. ‘E-filing is the prevailing trend now. Companies that will need to submit profit tax returns electronically should start preparing early and familiarise themselves with the e-filing system,’ she advised.

Looking ahead, the IRD is developing an e-Certificate of Resident Status to replace paper certificates. ‘We are aiming to develop a digital version that can be verified by other jurisdictions,’ Chan noted, adding that implementation requires coordination with other jurisdictions to ensure acceptance.