April 2018 - Hong Kong Enacted Legislation For a Two-tiered Profits Tax Rates Regime

Inland Revenue (Amendment) (No.3) Ordinance 2018 for introducing a two-tiered profits tax rates regime was enacted on 29 March 2018. The two-tiered profits tax rates regime will be effective from the year of assessment 2018/2019 (i.e. on or after 1 April 2018).

The main objective of the regime is to reduce the tax burden of SMEs and start-up businesses. To avoid group enterprises splitting income amongst numerous entities in order to enjoy the lower tax rate, restrictive provisions are introduced which limit the application of the two-tiered tax rates to only one entity nominated by a group of “connected” entities. The definition of “connected” entities can be found in our Hong Kong Tax News - January 2018.