Two-tiered profits tax regime is implemented

 In Hong Kong

The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) was passed by the Legislative Council on 21 March 2018. The Bill introduces the two-tiered profits tax regime (the “Two-tiered Regime”) which aims at reducing the tax burden of small and medium enterprises and start-up business. The Two-tiered Regime is applied to both corporation and unincorporated business (including sole proprietorship and partnership) and will become effective from the year of assessment 2018/19 onwards.

Currently the profits tax rates of corporation and unincorporated business are 16.5% and 15% respectively. Under the Two-tiered Regime, the rates applicable to the first HK$2 million assessable profits will become 8.25% and 7.5% respectively and the rates for the remainder are still 16.5% and 15%.

Below are some points to be noted under the Two-tiered Regime:

  1. Only an entity under a group of “connected” entities can be nominated for the Two-tiered Regime.
  2. The Two-tiered Regime is automatically applied to an entity unless it is an entity of a group of “connected” entities under which nomination is required.
  3. Entities which carry on special business such as reinsurance business, corporate treasury centre and aircraft leasing may have already enjoyed half tax rate for the profits earned, and the Two-tiered Regime will not be applied to them.

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