Hong Kong Tax News

On 24 May 2018, Hong Kong signed a comprehensive avoidance of double taxation agreement (CDTA) with Finland, being the first CDTA Hong Kong has with a Nordic jurisdiction. This brings the number of CDTAs Hong Kong has concluded with other jurisdictions to 40. The CDTA with Finland contains several favorable provisions which are expected to facilitate closer economic and trade ties between Hong Kong and Finland. This alert summarizes the salient points of the provisions of the CDTA as applicable to Hong Kong residents.

2. The legislative Council passed the base erosion and profit shifting (BEPS) and transfer pricing (TP) Bill

On 4 July 2018, the Inland Revenue (Amendment) (no.6) Bill 2017 passed its third and Final reading in the Legislative Council. The Amendment Bill No. 6 amends the IRd to :

• Require documentation relating to transactions for intercompany transactions
• Codify rules on transfer pricing
• Require income or loss from provision between associated persons to be computed for tax purposes on an arm’s length basis

The due dates for preparation of the master file, local file and Country by Country file shall be due by 31 Dec 2019 with the year end date between 1 January to 31 March and 30 September 2020 with the year end date between 1 to 31 December and 9 months after the accounting year end between 1 April to 30 November.

3. Scope of Tax Deductions for Capital Expenditure Incurred for Purchase of Intellectual Property Rights Expanded (Published by Inland Revenue Department on 29 June 2018)

The Inland Revenue (Amendment) (No. 5) Ordinance 2018 was gazetted and came into operation to expand the scope of profits tax deductions for capital expenditure incurred by enterprises for the purchase of intellectual property (“IP”) rights from five types to eight with effect from the year of tax assessment 2018/19. The additional three types of IP rights involved are rights in layout design (topography) of integrated circuits, plant varieties and performances. The original five types of IP rights for which profits tax deductions have already been provided for the capital expenditure incurred for their purchase are patents, know-how, copyright, registered designs and registered trademarks. The Amendment Ordinance also expands the scope of tax deductions originally provided for the registration expenses for trademarks, designs and patents, to cover plant variety rights as well.

4. Stock Borrowing Relief – Filing of Return of Stock Borrowing Transactions

The Stamp Office issued the “Stamping Circular No. 06/2018 Stock Borrowing Relief – Filing of Return of Stock Borrowing Transactions” on 3 July 2018.

The purpose of the Circular is to remind the borrowers under stock borrowing and lending agreements with the Stamp Office their obligation of filing a return of stock borrowing transactions as required under Section 19(13) of the Stamp Duty Ordinance.

The due date for filing the return of stock borrowing transactions for the period from 1 January 2018 to 30 June 2018 is 31 July 2018. Penalty at Level 2 (i.e. HK$5,000) will be imposed on late filing.

5. Tax Obligations of Taxpayers and Employers

The Inland Revenue Department published a notice on 5 July 2018, stating various tax obligations of employers and taxpayers under Sections 51(2), (6), (7) and (8); and 52(4), (5), (6) and (7) of the Inland Revenue Ordinance.

Should you require further details or assistance on the above, please contact Kenneth Au at kennetha@zetland.biz or +852 3552 9093.