Hong Kong’s Patent Box Regime and Effects

February 7, 2025 elitestage No Comment

Background

On July 5, 2024, the Hong Kong SAR Government gazetted the Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Ordinance 2024. This amendment to the Inland Revenue Ordinance (Cap. 112) introduces a preferential corporate tax rate of 5% for qualifying IP income, marking the official implementation of Hong Kong’s latest patent box regime.

Key Features

● Preferential Tax Rate: The adjusted profits tax rate is 5%, significantly lower than the standard rate of 16.5%.

● Qualifying IP Assets: Includes patents, plant variety rights, and copyrights embedded in software.

● R&D Requirements: The IP must be self-developed. Outsourced or acquired IP is subject to adjusted eligible profit.

● Registration Requirements: Qualifying IP can be registered globally but must be registered in Hong Kong within two years of implementation for patents and plant variety rights.

 

Advantages of the Regime

● Broad IP Coverage: Includes software copyrights and plant variety rights, expanding the policy’s coverage.

● Flexible Registration: Global IP registration is permitted, with local registration required only after two years.

● Short Patent Approval Cycle: Hong Kong’s fast patent approval process benefits businesses seeking quick protection.

● Enhanced Branding: Registering patents in Hong Kong boosts competitiveness and market visibility.

 

Impact on Hong Kong and Mainland Companies

Impact on Hong Kong Companies

● Innovation Incentives: Encourages increased R&D investment, enhancing overall innovation capacity.

● International Competitiveness: Reduces tax burdens on IP-related income, improving global market competitiveness.

● Strategic Positioning: Facilitates global market expansion and investment attraction through Hong Kong-registered IP.

Impact on Mainland Companies

● Overseas Business Expansion: Mainland companies can leverage Hong Kong’s regime to commercialize IP and reduce global tax burdens.

● International Branding: Registering patents in Hong Kong strengthens international brand presence.

● IP Protection: Hong Kong’s robust IP protection system helps Mainland companies address infringement risks in global markets.

For companies planning to expand into Canada and Hong Kong, understanding local economic, tax, and IP policies is crucial. These jurisdictions offer extensive opportunities for innovation and commercialization. Companies should consider their structure, tax obligations, and IP strategies to optimize growth and global competitiveness.

 

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