Cut in profits tax gives 130,000 small firms a break

Top News | Samantha Wong 12 Oct 2017

Companies are to get a tax concession as the tax rate for the first HK$2 million profit that they are making will be slashed to 8.25 percent, just half of the current standard 16.5 percent profits tax.

Profits over HK$2 million will continue to be subjected to the standard profits tax of 16.5 percent.

The relief, targeted mainly at small to medium-sized enterprises, was among a slew of tax alleviation measures announced yesterday by Carrie Lam.

To ensure that the tax relief will benefit SMEs, the government will introduce restrictions under which each group of enterprises may only nominate one enterprise to benefit from the lower tax rate.

Government sources said that about 130,000 companies stand to benefit from the two-tier profits tax scheme. The government may lose HK$5.8 billion in tax revenue from the concession that it is offering.

In the 2015-16 financial year, 104,000 firms listed under the company registry and another 30,000 sole proprietorship and partnership companies paid a total of HK$139 billion in profits tax.

The government source said that if a person heads a company or if he or she holds 51 percent of more than one company, the person has to choose which of his or her companies will enjoy the profits tax relief.

The government estimates that about 20 percent of enterprises that pay profits tax are related to other companies and they are thus not eligible for concession under the two-tier tax scheme.

Meanwhile, HSBC chief executive for Hong Kong Diana Cesar said the proposed new taxation scheme will reinforce the SAR's reputation as a great place to do business as the tax burden is reduced and it enhances the city's appeal to start-ups.

"Small and medium enterprises are the backbone of Hong Kong's economy, while a new generation of technology start-ups are poised to lead the next phase of its growth," Cesar said.

The government's measures to support technology and innovation in Hong Kong will also be critical to maintaining its global competitiveness, she added.

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