Xu Zhengyu: Hong Kong plans to establish a preferential tax system to attract high-value-added industries with preferential tax rates as low as 8.25%

The Zhitong Finance App learned that on October 5, the Secretary for Financial Services and the Treasury of Hong Kong, Hui Ching-yu, said at the Legislative Council Committee on Financial Affairs meeting that the 2025 “Policy Address” announced that the HKSAR Government would formulate preferential policy packages to attract high-value-added industries and high-potential enterprises to Hong Kong. As one of the policy tools in the preferential policy package, the 2026 “Policy Address” further announced that the government will submit a revised bill at the end of this year to establish a preferential tax system. Depending on the enterprise's investment plans and substantial contributions to the Hong Kong economy, etc., it will consider providing tax incentives to eligible enterprises in key industries.

Preferential policies include a variety of policy tools, including land grants, funding, or tax relief and concessions. The proposed preferential tax system is one of them. The goal is to attract enterprises engaged in key industries such as advanced manufacturing, innovative research and development, headquarters activities, logistics and supply chain management and finance. In addition to some basic requirements (such as minimum thresholds such as carrying out eligible activities, operating expenses, number of full-time employees, etc.), if an enterprise's investment plan and substantial contribution to the Hong Kong economy can meet certain conditions and levels, then a preferential tax rate of 5% or half tax (that is, 8.25% for a corporation) can be approved. The maximum qualifying period is five years.

Hong Kong will select enterprises with relevant conditions and development potential through a strict approval mechanism. Companies newly established in Hong Kong and those already doing business in Hong Kong can submit their business plans in Hong Kong through the Hong Kong Investment Promotion Department and the Office of the Introduction of Key Enterprises to apply for tax benefits under the proposed preferential tax system. Today, the two organizations are also represented here. The Steering Committee on Industry Attraction and Investment Preferential Policies, headed by the Financial Secretary of Hong Kong, is responsible for reviewing and approving applications. The Hong Kong Steering Committee, with the assistance of relevant policy bureaus and departments, will comprehensively review the application of the enterprise. The factors taken into account include the size, nature and business plan of the enterprise. The Hong Kong Steering Committee will set requirements on the amount of expenses and number of full-time employees for approved enterprises, and will impose additional conditions on a case-by-case basis.

Businesses may be concerned about whether the proposed preferential tax system will replace the current tax benefits for enterprises in various fields such as finance, shipping, aviation, etc. The proposed preferential tax system is designed to complement existing industry-specific preferential tax regimes. All income earned by eligible businesses will continue to enjoy preferential tax rates or be exempted from paying profits tax without prior approval.

Hong Kong plans to submit an amended bill to the Legislative Council in December this year with a view to implementing the proposed preferential tax system in the 2027/28 year of assessment.