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



The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.