Global Daily Tax News, Hong Kong To Hike Tax On High Earners, Cut Property Taxes, (Feb 29, 2024)

Hong Kong announced plans to hike the individual income tax burden for the territory's highest earners and tax cuts for the purchase of housing, in its Budget released February 28.

Hong Kong operates two personal income tax regimes in tandem, with taxpayers liable to the regime that arrives at the lowest tax liability. There is a progressive five-rate regime, which features rates between two and 17 percent, and a flat 15-percent tax rate regime, which is beneficial for higher earners.

The Budget announces that a new 16-percent rate will apply in addition to the 15 percent rate, when a taxpayer's income exceeds HKD5m. The 15 percent rate will continue to apply to income up to HKD5m.

After enactment of the relevant legislation, the Inland Revenue Department will apply the two-tiered standard rates in calculating the provisional salaries tax for the year of assessment 2024/25.

In the area of profits tax, the Budget announces a tax deduction for expenses incurred in reinstating the condition of leased premises to their original condition. In addition, the Budget proposes to remove the time limit for claiming industrial and commercial building allowances. Both measures would be effective from the year of assessment 2024/25.

Hong Kong has announced that it will reinstate hotel accommodation tax at a three percent rate from January 1, 2025.

Business registration fees will be hiked by 10 percent from April 1, 2024, but the HKD150 business registration levy will be waived for two years to largely offset the hike.

The Budget also proposes to waive stamp duties payable on the transfer of real estate investment trust units and the jobbing business of option market-makers.

In a major boost to the housing market, the Budget proposes to cancel all demand-side management measures for residential properties with immediate effect. As such, no Special Stamp Duty (SSD), Buyer's Stamp Duty (BSD) or Ad Valorem Stamp Duty (AVD) at 7.5 percent under Part 1 of Scale 1 needs to be paid for any residential property transactions starting February 28.

Subject to the eventual enactment of the Bill, any instrument executed on or after February 28, 2024, for the sale and purchase or transfer of residential properties are no longer subject to SSD and BSD. The AVD rate of 7.5 percent under Part 1 of Scale 1 is to be amended to the same as those of AVD at Scale 2.

Finally, the Budget provides for a one-off reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment 2023/24 by 100 percent, subject to a ceiling of HKD3,000 per case, which will be reflected automatically in taxpayers' final assessment.

The proposed tax reduction will only be applicable to the final tax for the year of assessment 2023/24, but not to the provisional tax of the same year. The proposed tax reduction is not applicable to property tax. Nevertheless, individuals with rental income, if eligible for personal assessment, may be able to enjoy such a reduction under personal assessment.