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Hong Kong Budget 2022-23: All You Need To Know

Posted: 15th March 2022 10:01

On February 23, 2022, Hong Kong’s Financial Secretary Paul Chan announced the Hong Kong 2022-23 Budget (2022-23 Budget) that includes spending plans worth over HK$170 billion to boost the economy and maintain public confidence.

Amid the outbreak of the fifth wave of the pandemic, the 2022-23 Budget contains measures to support citizens and businesses, while investing to maintain Hong Kong’s competitiveness in the medium- and long-term.

To be more specific, the Budget will continue to adopt an expansionary fiscal policy with initiatives mainly focusing on four areas:

  • Supporting an all-out effort to win the fight against the epidemic
  • Relieving the hardship of Hong Kong people and SMEs
  • Rendering support to the struggling economy and fostering post-epidemic economic revival
  • Investing for the future by planning ahead for the medium- and long-term development of the Hong Kong economy

In this article, we will summarize what businesses and individuals need to know about this year’s budget.

Hong Kong Outlook For 2022

Due to the strong rebound of the global economy, facilitated in part by the vibrant production and trading activity in Asia, Hong Kong’s overall GDP saw a visible recovery in 2021 with a growth of 6.4 percent, reversing the declining trend in the past two consecutive years. Among others, Hong Kong’s total exports of goods continued to register strong growth, with a notable increase of 19 percent in real terms for the year as a whole and surpassing the high in 2018 by 10.9 percent.

Nevertheless, Hong Kong’s economy still faces strong headwinds in 2022, with border closure and other COVID-19 containment measures continuing to take a toll on the city’s service sectors (catering, retail, tourism, etc.). At the same time, high energy prices, supply chain bottlenecks, and the complex geopolitical situation cast uncertainties over the global economic outlook.

Taking these internal and external factors into account, it is forecasted that Hong Kong’s economy will achieve growth of two to 3.5 percent in real terms in 2022. It is also forecasted that Hong Kong’s economy will grow by an average of three percent per annum in real terms from 2023 to 2026, slightly higher than the growth trend of 2.8 percent during the decade before the pandemic.

Hong-Kong’s-GDP-2012-2022

Tax Measures Proposed To Support Individuals And Enterprises

To relieve people’s hardship and preserve the vitality of the economy, and in particular the survival of small to medium-sized enterprises (SMEs), Budget 2022-23 proposes a series of counter-cyclical measures, some of which are related to taxes, including:

  • Reducing profits tax, salaries tax, and tax under personal assessment for the year of assessment 2021-22 (that is, from April 1, 2021 to March 31, 2022)
  • Waiving business registration fees for 2022-23
  • Introducing a tax deduction for domestic rental expenses

Profits Tax

The Financial Secretary proposed a one-off reduction of profits tax for the year of assessment 2021-22 by 100 percent, subject to a ceiling of HK$10,000 per case. This measure will benefit 151,000 businesses and reduce government revenue by HK$1.2 billion.

Effect of the Proposed One-off Profits Tax Reduction
Assessable Profits No. of Businesses* Average Amount Of Tax Reduction Average % Of Tax Reduced
HK$100,000 and below 44,000 HK$3,860 100%
HK$100,001 to HK$200,000 20,000 HK$10,000 57%
HK$200,001 to HK$300,000 13,000 HK$10,000 37%
HK$300,001 to HK$400,000 8,000 HK$10,000 26%
HK$400,001 to HK$600,000 11,000 HK$10,000 19%
HK$600,001 to HK$900,000 11,000 HK$10,000 13%
Above HK$900,000 44,000 HK$10,000 0.3%
Total 151,000
Source: Hong Kong’s 2022-23 Budget Plan

 

*As of December 31, 2021, there were about 1.26 million corporations and 290,000 unincorporated businesses in Hong Kong. The 151,000 businesses to be benefited here include 113,000 corporations and 38,000 unincorporated businesses.

The Inland Revenue Department (IRD) of the HKSAR further supplemented with the following points of information:

  • The tax reduction ceiling will be applied to each business.
  • The proposed reduction will be reflected in the final tax payable for the year of assessment 2021-22, but not to the provisional tax of the same year. Therefore, taxpayers are still required to pay their provisional tax on time despite the proposed reduction measure.
  • Before the enactment of the relevant legislation, relevant taxpayers should file their profits tax returns for the year of assessment 2021-22 as usual. Upon enactment of the relevant legislation, the IRD will calculate the reduction in the final assessment. For any final assessment for 2021-22 issued before the enactment of the law, the IRD will make a reassessment after the enactment. Taxpayers are not required to make any applications or enquiries to the IRD.

In addition to the above proposed reduction of profits tax, the 2022-23 Budget proposes to provide tax concessions for eligible family investment management entities managed by single-family offices. No further details are available at the time of writing this article. The Financial Secretary said they will consult the sector on the detailed proposal as soon as possible and aim to submit legislative amendments to the Legal Council (LegCo) within the current legislative session.
 

No changes are proposed to tax rates of the profits tax in the 2022-23 Budget. That is to say, the standard profits tax rates for the year of assessment 2021-22 will still be at 16 percent for corporations and 15 percent for incorporated businesses. And the two-tiered profits tax rates will still be as shown in the below table:

Two-Tiered Profits Tax Rates in Hong Kong
Assessable Profits       Corporations       Unincorporated Businesses    
First HK$2 million 8.25% 7.5%
Over HK$2 million 16.5% 15%

Salaries Tax And Tax Under Personal Assessment

To provide support for individuals who have been affected by the epidemic, the 2022-23 Budget proposes a one-off reduction of salaries tax and tax under personal assessment for the year of assessment 2021-22 by 100 percent, subject to a ceiling of HK$10,000.  The reduction will be reflected in the final tax payable for the year of assessment 2021-22.  This measure will benefit 2.01 million taxpayers and reduce government revenue by HK$13.1 billion.

Effect Of The Proposed One-off Reduction Of Salaries Tax And Tax Under Personal Assessment
Assessable Income                          No. Of Taxpayers            Average Amount Of Tax Reduction           Average % Of Tax Eeduced       
HK$200,000 and below 221,000 HK$820 100%
HK$200,001 to HK$300,000 420,000 HK$3,630 99%
HK$300,001 to HK$400,000 364,000 HK$6,780 66%
HK$400,001 to HK$600,000 439,000 HK$8,140 39%
HK$600,001 to HK$900,000 300,000 HK$9,250 19%
Above HK$900,000 265,000 HK$9,870 4%
Total 2,009,000
Source: Hong Kong’s 2022-23 Budget Plan

 

Note: As of 31 December 2021, Hong Kong had a working population of 3.68 million.

Similar to the proposed profits tax reduction measures, the IRD further supplemented that:

  • For salaries tax, the ceiling is applied to each individual taxpayer. For married couples who are jointly assessed, the ceiling is applied to each married couple (that is, capped at HK$10,000 in total). For personal assessment, the ceiling is applied to each single taxpayer or married person who elects for personal assessment separately from his/her spouse. If a taxpayer elects for personal assessment jointly with his/her spouse, the tax reduction is capped at HK$10,000 for the married couple.
  • The proposed tax reduction is not applicable to property tax. Individuals with rental income, if eligible for personal assessment, may be able to enjoy such reduction under personal assessment.
  • A taxpayer who is separately chargeable to salaries tax and profits tax can enjoy tax reduction under each of the tax types.
  • Taxpayers should file their profits tax returns and tax returns for individuals for the year of assessment 2021/22 as usual.
  • Before the enactment of the relevant legislation, taxpayers should file their profits tax returns for the year of assessment 2021-22 as usual.
  • The proposed tax reduction will only be applicable to the final tax for the year of assessment 2021/22, but not to the provisional tax of the same year. Therefore, taxpayers are still required to pay their provisional tax on time despite the proposed reduction measure.

In addition to the above proposed reduction measures, the 2022-23 Budget also proposes to provide a tax reduction for domestic rental expenses starting from the year of assessment 2022-23, subject to a ceiling of HK$100,000 for a year of assessment. This is to ease the burden of renting a private property on taxpayers liable to salaries tax and tax under personal assessment who are not owners of domestic properties. Further information supplemented by the IRD is noted in the table below.

Proposed Tax Reduction For Domestic Rental Expenses

Eligible persons Who are eligible:

 

  • Taxpayers liable to salaries tax and tax charged under personal assessment
  • Deduction is also allowed to a taxpayer in respect of a tenancy agreement entered into by his/her co-habiting spouse

 

Who are not eligible:

 

  • Taxpayer who owns any domestic property
  • Landlord of the rented property is an associate of the taxpayer (e.g., the landlord is a spouse, parent, child, brother/sister or partner of the taxpayer, or a corporation controlled by the taxpayer)
  • Taxpayer who is provided with a place of residence by his/her employer (including those who receive a refund for any rent paid)

 

Eligible rented properties What are eligible:

 

  • The rented private property must be the taxpayer’s principal place of residence in Hong Kong
  • With a stamped tenancy agreement
What are not eligible:

 

  • Premises in respect of which letting for domestic purposes is not permitted (e.g., the rented private property is a non-domestic property)
  • Domestic property rented under a lease-purchase agreement
Allowable deduction amount
  • Deduction ceiling: HK$100,000 for each year of assessment (no limit for entitlement period)
  • Deduction is only allowed for rental expenses already paid
  • If there is more than 1 tenant under the tenancy agreement, deduction ceiling is to be reduced in proportion to the number of co-tenants of the tenancy agreement
  • If the tenancy period falling within a year of assessment is less than 12 months, deduction ceiling is to be reduced in proportion to the relevant tenancy period within the year of assessment
Source: IRD & Financial Services and the Treasury Bureau

Waiver Of Business Registration Fees For One Year

The Financial Secretary proposed to waive business registration fees for one year from April 1, 2022 to March 31, 2023 (Waiver Period). This measure will benefit 1.5 million business operators and reduce government revenue by HK$3 billion. The Hong Kong Government will introduce the relevant legislative amendment into the LegCo as soon as possible to implement the measure.

The IRD has provided more details on the implementation of this proposed measure:

  • In respect of local companies registered under the one-stop company incorporation and business registration regime (“One-stop Registration”), the fees payable under section 5A(1)(a) of the Business Registration Ordinance (Cap. 310) will be reduced by a sum of HK$2,000 if the related incorporation submissions are made within the Waiver Period. For other cases, the fees payable in respect of business registration certificates and branch registration certificates with commencement date falling within the Waiver Period will be reduced by a sum of HK$2,000 and HK$73, respectively.
  • Businesses are still required to pay the levy for the Protection of Wages on Insolvency Fund.
  • Businesses that have paid the registration fees for the Waiver Period but are not required to renew their certificates in the Waiver Period can also benefit from the concessionary measure by getting a refund of the relevant amount of business registration fees paid in respect of the Waiver Period.
  • No application is required. The IRD will directly send refund cheques to eligible businesses for the business registration fees paid in respect of the Waiver Period. The refund arrangement will be announced after the relevant legislative amendment is passed by the LegCo.

Other Fiscal Measures To Support Enterprises

In addition to the tax measures, the 2022-23 Budget also provided the below rates concession and waiver of fees and charges to businesses affected by the pandemic:

  • Providing rates concession for non‑domestic properties for four quarters of 2022‑23, subject to a ceiling of HK$5,000 per quarter in the first two quarters and a ceiling of HK$2,000 per quarter in the remaining two quarters for each ratable property.
  • Waiving the business registration fees for 2022‑
  • Continuing to waive 75 percent of water and sewage charges payable by non‑domestic households for eight months until November 30, 2022, subject to a monthly ceiling of HK$20,000 and HK$12,500, respectively, per household.
  • Extending the waivers/concessions of the existing 34 groups of government fees and charges for 12 months starting from October this year. This measure will benefit a wide range of sectors, such as aviation, maritime, logistics, retail, catering, agriculture and fisheries, construction, tourism, and entertainment.
  • Continuing to grant the 75 percent rental or fee concession currently applicable to eligible tenants of government premises and eligible short‑term tenancies and waivers under the Lands Department for six months until September 30, 2022. During the period, tenants who have to close their properties at the request of the Government will continue to receive full rental waiver for the duration of the closure.

Issuing Consumption Vouchers

To boost the market sentiment, stimulate local consumption, and speed up economic recovery, the 2022-23 Budget proposes a new round of consumption voucher scheme, under which electronic consumption vouchers with a total value of HK$10,000 will be disbursed by instalment to each eligible Hong Kong permanent resident and new arrival aged 18 or above through suitable stored value facilities. The scheme is expected to benefit about 6.6 million people.

To be more specific, consumption vouchers valued at HK$5,000 will be disbursed in April to over 6.3 million successful registrants first by making use of the registration data collected through last year’s consumption voucher scheme. They will get the remaining vouchers by instalments together with the new eligible persons in the middle of the year.

Enhancing Ecnomic Resilience And Enriching Industrial Development

As to long-term economic policies, the 2022-23 Budget proposes enriched industrial development, and a move towards high-quality and inclusive economic growth, thereby creating more high-quality and diverse employment opportunities.

In addition to making good use of the national policies and Hong Kong’s unique advantages and continuing to play its bridging and platform role between mainland China and the international market, the 2022-23 Budget proposes to allocate more resources to support innovation and technology as well as the digital economy:

  • To support start-ups and technology investments, the 2022-23 Budget proposes to increase the funding allocated to the Hong Kong Growth Portfolio under the Future Fund by HK$10 billion, of which HK$5 billion will be used to set up a new investment fund, namely the Strategic Tech Fund.
  • To help universities realize their R&D outcomes, start-ups of universities with private investments (on a matching basis of one to one) may receive an annual subsidy of up to HK$1.5 million for a maximum of three years.
  • To further promote the development of life and health technology in Hong Kong, the 2022-23 Budget proposes to earmark HK$10 billion to provide more comprehensive support to relevant enterprises and set up the InnoLife Healthtech Hub in the Hong Kong‑Shenzhen Innovation and Technology Park.

Enhancing Hong Kong’s Role As An International Financial Center

The 2022-23 Budget also proposes multiple measures to enhance Hong Kong’s role as an international financial center.

In 2021, the securities market of Hong Kong continued to flourish. The Hong Kong stock market recorded an average daily turnover of HK$166.7 billion last year, representing an increase of 29 percent over 2020. Funds raised through initial public offerings (IPO) in Hong Kong amounted to nearly HK$330 billion during the same period, making Hong Kong the fourth largest IPO center in the world.

To empower and accelerate the development of the Hong Kong market, Hong Kong will endeavor to achieve continuous operational enhancement, system reformation, and innovative development. Among others, to attract large scale advanced technology enterprises, which require substantial capital for their R&D work but are not qualified for listing as they fail to meet the profit and trading record requirements, the Securities and Futures Commission (SFC) and the HKEX are reviewing the Main Board Listing Rules and, with due regard to the risks involved, examining the revision of the listing requirements to meet the fundraising needs of such enterprises.

In addition to the securities market, the 2022-23 Budget proposes to further enhance Hong Kong’s role as an offshore Renminbi business hub, deepen mutual access with the mainland, develop family office businesses, increase green and sustainable finance, and support the development of financial technology and commercial data interchange. Moreover, the 2022-23 Budget proposes to spend HK$5 million to set up a GBA Investment Fund, to focus on investment opportunities in the GBA.

New International Tax Standards

In 2021, Hong Kong, together with more than 130 jurisdictions across the globe, pledged to implement the international tax reform proposals drawn up by the OECD to address base erosion and profit shifting (abbreviated as BEPS 2.0).  In the Budget Plan speech, the Financial Secretary said that the Hong Kong Government has been exchanging views with the affected large multinational enterprise (MNE) groups with global turnover of at least 750 million euros and reaffirmed that Hong Kong will preserve advantages of its tax regime in terms of its simplicity, certainty, and transparency, maintain the territorial source principle of taxation, as well as minimize the compliance burden on MNEs when implementing BEPS 2.0.

As to the new tax rules for the adoption of the BEPS 2.0, the Financial Secretary mentioned that they will submit a legislative proposal to the LegCo in the second half of 2022 to implement the global minimum tax rate and other relevant requirements in accordance with the international consensus.  At the same time, they will consider introducing a domestic minimum top‑up tax with regard to the aforesaid MNEs starting from the year of assessment 2024-25 to ensure that their effective tax rates reach the global minimum effective tax rate of 15 percent so as to safeguard Hong Kong’s taxing rights.

What Next?

All the measures proposed in the 2022-23 Budget can only be implemented after completion of the relevant legislative processes, which usually happens in April.

The expenditure proposals in the Budget, consolidated in the Estimates of Expenditure, will be referred by the President of the LegCo to the Finance Committee (“FC”) of the Legislative Council for detailed examination. FC holds special meetings to examine the Estimates of Expenditure to ensure that the Hong Kong Government is seeking a provision no more than is necessary for the execution of the approved policies.

After the motion for the Third Reading is agreed to, the Budget Plan is passed.

Individuals and businesses that might be affected by the measures proposed in the 2022-23 Budget are suggested to pay close attention to the development in the following months.


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