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

Hong Kong lawmakers have approved the government's proposal for tax incentives aimed at enticing major innovative firms to establish headquarters or expand operations in the city. However, many lawmakers expressed concerns that a five-year tax concession period, proposed by Chief Executive John Lee Ka-chiu, is too short to attract significant investment.

The government plans to offer preferential profits tax rates of either 5 per cent or 8.25 per cent, half of the city's standard corporate tax rate of 16.5 per cent, for specific sectors such as advanced manufacturing, finance, logistics, and supply chain management, targeting large companies with substantial expansion plans and hiring capabilities.

Lawmaker Alan Chan Chung-yee pointed out that many innovative companies do not generate profits within the first decade of operation, rendering the five-year tax break insufficient to influence their investment decisions. Nick Chan Hiu-fung noted that international companies might consider the long-term implications before relocating their regional headquarters, making a prolonged tax concession period more appealing.

Although Finance Secretary Christopher Hui Ching-yu maintained that five years would be sufficient, with the option for companies to renew the incentives if they continued expanding in Hong Kong, several lawmakers raised concerns about potential abuse of the scheme. The tax incentives are expected to commence from the tax year starting April 1, subject to legislative approval.