Hong Kong lawmakers say 5-year tax incentive too short to entice major innovative firms

Hong Kong lawmakers have expressed concerns that the proposed five-year tax incentive period for large innovative companies is insufficient to attract major firms to establish headquarters or expand operations in the city. Chief Executive John Lee Ka-chiu had suggested in his recent policy address that the government would introduce preferential profits tax rates of 5 per cent or 8.25 per cent, half of Hong Kong's standard corporate tax rate of 16.5 per cent, for up to five years.

However, many lawmakers questioned whether such a short timeframe would be enticing enough for innovative companies, given that many do not generate profits within the first decade of operation. Legislative Council member Alan Chan Chung-yee noted that even after five years, these companies might not need to pay tax. Nick Chan Hiu-fung suggested that a longer period of 10 or 15 years might be more appropriate, as overseas companies typically consider a longer-term perspective when evaluating relocation options.

While Hong Kong's proposed five-year tax concession is shorter than Singapore's offer, the government argued that the approval process for the incentive scheme would prevent tax avoidance and ensure companies meet their expansion and hiring targets. The five-year period would begin from the tax year starting April 1, pending legislative approval.