Hong Kong: Consultation on proposed patent box regime
Proposed patent box regime announced in 2023-2024 budget
Proposed patent box regime announced in 2023-2024 budget
The government on 1 September 2023 launched a one-month consultation on a proposed patent box regime, which will introduce tax concessions for onshore profits from qualifying intellectual properties (IPs).
The proposed patent box regime was announced in the 2023-2024 budget. Read TaxNewsFlash
The proposed patent box regime
- A concessionary tax rate (the government is seeking views on the rate) would apply to a portion of the onshore eligible IP income derived from eligible IP assets calculated under the nexus approach, that is to be computed based on the nexus ratio (eligible expenditures divided by the overall expenditures incurred by the taxpayer to develop the eligible IP asset).
- Only patents and other IP assets that are functionally equivalent to patents would qualify as eligible IP assets (i.e., registered patents, copyrighted software, and plant variety rights).
- Eligible IP income would include:
- Income derived from an eligible IP asset in respect of exhibition or use of, or a right to exhibit or use (whether in or outside Hong Kong) the asset, or imparting of, or undertaking to impart, the knowledge directly or indirectly connected with the use (whether in or outside Hong Kong) of the asset
- Income arising from the sale of an eligible IP asset
- The portion of income, determined on a just and reasonable basis (e.g., based on the transfer pricing principles), attributable to the eligible IP asset’s element included in a sale of product or service
- Eligible expenditures refer to those incurred by the taxpayer to develop the eligible IP asset and do not include acquisition costs. It would cover expenditures on research and development (R&D) activities:
- Undertaken by the taxpayer in or outside Hong Kong
- Outsourced to resident related parties to conduct the R&D activities in Hong Kong
- Outsourced to unrelated parties to undertake the R&D activities in or outside Hong Kong
Implementation timeline
The consultation will end on 30 September 2023. The government plans to introduce a bill with the necessary legislative amendments into the Legislative Council in the first half of 2024.
For more information contact a KPMG tax professional:
David Ling | davidxling@kpmg.com
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