Hong Kong's Budget For 2023-24 To Boost The City's Recovery
On February 22, 2023, Hong Kong’s Financial Secretary Paul Chan announced the Hong Kong 2023-24 Budget that revealed his blueprint to boost the city’s recovery momentum in the post-COVID era.
The Financial Secretary has proposed a one-time reduction of profits tax for the year of assessment 2022-23 by 100 percent, subject to a ceiling of HK$6,000 per case, which is lower than the previous Budget cap (HK$10,000). This measure will benefit 134,000 businesses while costing the government HK$720 million.
Salaries tax and tax under personal assessment
To assist individuals affected by the epidemic, the 2023-24 Budget proposes a one-time 100 percent reduction in salaries tax and tax under personal assessment for the year of assessment 2022-23, subject to a cap of HK$6,000, which is lower than the previous Budget’s cap (HK$10,000). This measure will benefit 1.9 million taxpayers while costing the government HK$8.5 billion.
New international tax regulations
In 2021, Hong Kong, along with more than 130 other jurisdictions around the world, pledged to implement the Organization for Economic Cooperation and Development (OECD) international tax reform proposals to address base erosion and profit shifting (abbreviated as BEPS 2.0). The Financial Secretary stated in his Budget Plan speech that Hong Kong will implement the global minimum effective tax rate in accordance with international consensus in order to protect Hong Kong’s taxing rights and maintain the city’s tax regime’s competitiveness.
Concerning the new tax rules for the implementation of BEPS 2.0, the Financial Secretary stated that Hong Kong intends to apply the global minimum effective tax rate on these large MNE groups and implement the domestic minimum top-up tax beginning in 2025. He also promised that Hong Kong will launch a consultation exercise to allow MNE groups to make early preparation.
Hong Kong’s economy will continue to be driven by its position as a major regional trading port in the coming years. Budget 2023-24 proposes several strategies for developing trade with overseas markets, particularly emerging ones, to expand its trading industry.
One such strategy would be to broaden its network of free trade agreements (FTAs) and investment treaties (IAs) to include more emerging markets. In his speech, the financial secretary also stated that Hong Kong will work actively to join the Regional Comprehensive Economic Partnership (RCEP), a trade pact of 15 Asia-Pacific countries, including the ten ASEAN members.
Attracting foreign companies to re-domicile in Hong Kong
Hong Kong is well-known as a highly competitive location for multinational enterprises (MNEs) and corporate headquarters. The government intends to introduce a facilitation mechanism to encourage companies with a focus on the Asia-Pacific region to re-domicile in Hong Kong in order to expand market opportunities and attract foreign companies.
This initiative aims to enable these businesses to take advantage of Hong Kong’s favorable business environment and professional services.