Hong Kong Budget to boost confidence, opportunities and high‑quality development

Hong Kong Financial Secretary Paul Chan delivered the 2024-25 Budget on 28 February. Designed to bolster confidence and create favourable conditions for recovery, it prioritises continuing to attract enterprises, capital and talent to Hong Kong, and to assist small and medium-sized enterprises (SMEs).

“In 2023, the Hong Kong economy returned to normalcy in the aftermath of the pandemic. Economic activities showed improvement immediately following the removal of anti-epidemic measures and the resumption of normal travel early in the year, though the difficult external environment continued to constrain the pace of growth. For the year as a whole, the economy grew 3.2%,” said Chan.

“The government’s efforts in expanding economic capacity, enhancing competitiveness and cultivating new growth areas will enable Hong Kong to seize opportunities when the global economic situation improves, enhancing its medium- to long-term growth momentum. We forecast that the Hong Kong economy will grow by an average of 3.2% a year in real terms from 2025 to 2028.”

Attracting enterprises, capital and talent

More than 10 strategic enterprises are expected to sign partnership agreements with the Office for Attracting Strategic Enterprises (OASES) in March, having either confirmed that they are setting up or expanding their businesses in Hong Kong.

Together with the 30 companies from the first batch, they are expected to bring about over HKD40 billion in investment to Hong Kong, creating about 13,000 jobs over the next few years. Their presence in Hong Kong will attract upstream, midstream and downstream partners from their industry chains, promoting development of the Innovation and Technology (I&T) sector.

The Hong Kong Investment Corporation (HKIC) will also attract more I&T companies to establish their presence in Hong Kong, accelerating the development of strategic industries. The first batch of direct investment and co‑investment projects is to be implemented in the first half of this year, covering areas such as life technology, green technology and finance, semi‑conductors and chips, as well as the upgrading and transformation of manufacturing industries.

Having already put in place user‑friendly fund re-domiciliation mechanisms for Open-ended Fund Companies and Limited Partnership Funds to attract existing foreign funds to establish and operate in Hong Kong, the government said it will now be submitting a legislative proposal in the first half of 2024 to enable companies domiciled overseas, especially enterprises with a business focus in the Asia-Pacific region, to re-domicile in Hong Kong.

Pooling talent

More than 140,000 applications were approved under various talent admission schemes over the past year or so, including the Top Talent Pass Scheme (TTPS), of which around 100,000 have already arrived in Hong Kong. More than half of those who have been in Hong Kong for at least half a year are employed, and their median monthly income is about HKD50,000.

The Hong Kong Talent Engage (HKTE) is to organise a Global Talent Summit and the Guangdong‑Hong Kong‑Macao Greater Bay Area (GBA) High‑quality Talent Development Conference in May. The aim is to promote Hong Kong’s advantages as an international talent hub, enabling the flow of talent among the cities of the GBA.

Profits Tax

The Budget contained a one-off 100 % reduction in profits tax for 2023-24, subject to a cap of HKD3,000 (down from HKD6,000 last year.

The two-tiered profits tax rates remain unchanged. The profits tax rate for the first HKD2 million of assessable profits for corporation is 8.25% instead of 16.5% and 7.5% for unincorporated businesses instead of 15%. Assessable profits above HKD2 million will continue to be subject to the normal rates.

To ease the tax burden on SMEs, the Budget proposes a tax deduction for expenses incurred in reinstating the condition of leased premises to their original condition and the removal of time limit for claiming the allowances for industrial / commercial buildings and structures. Both enhancement measures will take effect from the year of assessment 2024/25.

The government is to introduce legislation the first half of 2024 to amend the Inland Revenue Ordinance to implement a ‘patent box’ tax incentive, which will reduce substantially the tax rate for profits derived from qualifying Intellectual Property (IP) from 16.5% to 5%. This incentive, first proposed in last year’s Budget, aims to encourage enterprises to devote more resources to research and development and conduct commercialisation transactions making use of patents and other IP protections.

To implement the global minimum tax proposed by the OECD to address base erosion and profit shifting (BEPS), the government said it aims to apply the global minimum tax rate of 15% on large multinational enterprise (MNE) groups with an annual consolidated group revenue of at least €750 million and impose the Hong Kong minimum top-up tax starting from 2025.

It is currently consulting on implementation and expect to submit a legislative proposal to LegCo in the second half of this year. It is estimated that these proposals will raise tax revenue of about HKD15 billion annually starting from 2027-28.

To attract more fund managers and family offices to Hong Kong, the government said it intends to further enhance the preferential tax regimes for related funds, single family offices and carried interest. This will include reviewing the scope of these tax concession regimes, expanding the types of qualifying transactions and providing greater flexibility in handling incidental transactions.

Business registration fees are to be increased by HKD200 to HKD2,200 per annum with effect from 1 April 2024. The business registration levy of HKD150 will be waived for two years.

The collection of the Hotel Accommodation Tax at a rate of 3% is to be reintroduced, effective from 1 January 2025.

Salaries Tax and Personal Assessment

The Budget proposes to implement a two-tiered standard rates regime for salaries tax and tax under personal assessment starting from the year of assessment 2024/25.

Currently, employees are charged income tax on a progressive system, starting at 2% and ending at 17%, or at a standard rate of 15% on net income, whichever is lower.

Under the proposed two-tiered standard rate regime, the first HKD5 million of net income will continue to be subject to the standard 15% rate, while any amount exceeding HKD5 million will be taxed at a rate of 16%.

According to the government, this change will only impact around 12,000 taxpayers (0.6% of the total number of taxpayers chargeable to salaries tax and tax under personal assessment) and Hong Kong’s low-tax environment will continue to make it an attractive destination for high-income professionals and talents.

Real Estate

The Budget contained a one-off concession for rates on domestic and non-domestic properties for the first quarter of 2024-25, subject to a HKD1,000 ceiling for each rateable property.

After consideration of current economic and market conditions in the residential property market, the government announced the cancellation of all demand-side management measures – Special Stamp Duty (SSD), Buyer’s Stamp Duty (BSD) and New Residential Stamp Duty (NRSD) – for residential properties with immediate effect.

This means that stamp duty on the sale of immovable property in Hong Kong will only be subject to ad valorem stamp duty (AVD) at the Scale 2 rates (from HKD100 up to 4.25% of the consideration or value of the property, irrespective of whether the purchaser is a first-time buyer or a Hong Kong Permanent Resident (HKPR). The same AVD rate will also apply if the purchase or acquisition is made by a corporate vehicle or trust structure.

The government is further proposing legislative amendments in the first half of this year to implement a progressive rating system for domestic properties with rateable value over HKD550,000 from the fourth quarter of 2024-25 onwards.

Re-domiciliation mechanisms

Having already user‑friendly fund re-domiciliation mechanisms for Open-ended Fund Companies and Limited Partnership Funds to attract existing foreign funds to establish and operate in Hong Kong, the government announced it will be submitting, in the first half of 2024, a legislative proposal to enable companies domiciled overseas, especially enterprises with a business focus in the Asia-Pacific region, to re-domicile in Hong Kong.

Financial Services

To bolster the competitiveness and advantages of the financial services industry in Hong Kong, the government will earmark HKD100 million to promote the sustainable development of financial services. This includes green and sustainable finance, fintech, asset and wealth management, headquarters business and risk management.

The government will extend the Grant Scheme for Open‑ended Fund Companies and Real Estate Investment Trusts for three years and set up a task force to discuss with the industry measures for further developing the asset and wealth management industry.

In 2024‑25, the HK government will issue HKD120 billion worth of bonds, of which HKD70 billion will be retail tranche that includes HKD50 billion worth of silver bonds and HKD20 billion worth of green bonds and infrastructure bonds to improve financial inclusiveness.

Incentives for SMEs

An extension of the SME Financing Guarantee Scheme, a loan matching scheme carried out by the Hong Kong Mortgage Corporation Limited Insurance (HKMCI) to assist SMEs and non-listed companies to receive financing from approved participating lenders to meet business needs.

Under the updated scheme, the application period for the 80% and 90% Guarantee Products under the SME Financing Guarantee Scheme, which were set to expire at the end of March 2024, will be extended for two years until the end of March 2026. Additionally, the total guaranteed commitment under the scheme will increase by HKD10 billion.

SMEs in the food and beverage and retail industries will have access to basic digital solutions through the Digital Transformation Support Pilot Programme. Subsidies will be provided on a matching basis for implementing digital solutions, focusing on areas such as digital payment, online promotion, and customer management.

The Dedicated Fund on Branding, Upgrading, and Domestic Sales (BUD Fund), which has now expanded to all countries that have signed an Investment Promotion and Protection Agreement (IPPA) or Free Trade Agreement (FTA) with Hong Kong, will receive a HKD500 million injection to help SMEs enhance competitiveness and expand into the Chinese mainland and overseas markets. This includes support for e-commerce projects through the ‘E-commerce Easy’ initiative.

The Budget was also focused on innovation and technology, green development and creative arts to guide industries towards high-quality development. In addition to developing sectors such as innovation and technology and finance, the government is seeking to position Hong Kong as a multinational supply chain management centre, focusing on serving Mainland enterprises going global.

Innovation and Technology

• HKD3 billion allocated to launch a Frontier Technology Research Infrastructure Support Scheme.
• HKD6 billion allocated for universities to establish life and health technology research institutes.
• Allocate HKD3 billion allocated to support local universities, R&D institutes and enterprises to leverage power of AI Supercomputing Centre.
• Set up the Greater Bay Area International Clinical Trial Institute in Hetao Shenzhen Hong Kong Science and Technology Innovation Co-operation Zone this year.
• HKD2 billion allocated to support presence of InnoHK research clusters in the Hetao.
  HKD200 million to support incubation and acceleration programmes to Hetao start-ups engaging in life and health technology.
• Launch the New Industrialisation Acceleration Scheme this year and provide enterprises with up to HKD200 million on a matching basis.
• HKD45 million to support Hong Kong Productivity Council in establishing and operating World Intellectual Property Organisation (WIPO) Technology and Innovation Support Centre.
• The government will set up a ‘digital identity of enterprises’ platform (the business version of ‘iAM Smart’) to enable authentication of identity and verification of signature of enterprises using electronic government services or conducting online business transactions in a secure, and efficient manner. The expenditure involved is estimated at HKD300 million and the goal is to roll out the platform progressively from end‑2026.

Green development

• Extend the Green & Sustainable Finance Grant Scheme, which has so far provided subsidies to eligible bond issuers and loan borrowers for the issuance of more than 340 green and sustainable debt instruments in Hong Kong totalling USD100 billion. The scheme, which was due to expire in mid‑2024, will be extended to 2027 and expanded to cover transition bonds and loans. This will encourage related industries in the region to make use of Hong Kong’s transition financing platform as they move towards decarbonisation.
• A Green & Sustainable Fintech Proof of Concept Subsidy Scheme will be launched in the first half of 2024 to provide early-stage funding support for green fintech, facilitating commercialisation and fostering the development of new green fintech initiatives.
• Allocate HKD65 million to concessionary measures for Hong Kong-registered ships that have attained a high rating under international standards of decarbonisation.

Creative arts

• The government will inject HKD1.4 billion into the Film Development Fund in 2024/25 to support film projects.
• The government will inject HKD2.9 billion into the CreateSmart Initiative in 2024/2, to support projects in arts and design.