The Hong Kong Government Explore To Introduce Tax Incentives To Encourage Investment in Research And Development

In response the global financial tsunami, the Task Force on Economic Challenges was established and chaired by the Chief Executive, Mr. Donald Tsang to formulate measures to stabilize the economy, boost employment and further strengthen the Hong Kong economic foundations and competitiveness. The Task Force, after the last meeting on 22 June, 2009, has identified six priority industries where Hong Kong enjoys clear advantages. They are: educational services; medical services; testing and certification; innovation and technology; cultural and creative industries; and environmental industries. Regarding the Task Force’s recommendations on innovation and technology, the Chief Executive announced that the Hong Kong Government will actively explore the possibility of new financial or tax incentives to encourage the private sector to increase investment in research and development activity. Though no further details have been given by the announcement, such recommendation is welcomed by the Hong Kong business section, as the promotion of technological innovation can enhance the global competition of Hong Kong and to create more job opportunities through the increase of investment on research and development by the private sector. Hong Kong’s current tax incentives are limited to the tax deductions on direct research and development expenditure, or payments to approved research institutes, where they are related to the trade or business of the taxpayer. In comparison with the other developed countries in Asia, such as Singapore and Australia which offer tax deduction in excess of 100% of research and development expenditure, the Hong Kong’s incentives are less attractive. Therefore, in designing the new tax incentive scheme, the Hong Kong Government should refer to the experience of other developed countries in the world. Disclaimer: The publication contains information in summary form and is therefore intended for general guidance only. This publication is not intended as legal, accounting or other professional advice and should not be relied upon as such. If legal, accounting or other professional advice or expert assistance is required, the services of a competent professional should be sought. Neither Reanda Lau & Au Yeung Limited nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication. For details, please refer to the “Recommendations from the Task Force on Economic Challenges for promoting the development of the six economic areas” published on 22 June, 2009.