The Inland Revenue (Amendment) (No. 3) Ordinance 2018 was gazetted today to implement the two-tiered profits tax rates regime from April 1.

The initiative was announced in the 2017 Policy Address.

The Government said the two-tiered profits tax rates regime will reduce the burden on businesses, especially small and medium enterprises, and startups. 

It said the arrangement will help foster a favourable business environment, drive economic growth, create job opportunities and enhance Hong Kong's competitiveness.

Under the new system, the tax rate for the first $2 million of company profits will be lowered to 8.25%, while profits above that amount will continue to be subject to the 16.5% tax rate.

For unincorporated businesses such as partnerships and sole proprietorships, the two-tiered tax rates will correspondingly be set at 7.5% and 15%. 

Assuming 20% of the tax-paying enterprises are connected enterprises, the tax revenue forgone due to the implementation of the initiative will be about $5.8 billion per year, or around 4% of the total profits tax received in 2016-17, the Government said.

A tax-paying corporation or unincorporated business could save up to $165,000 and $150,000 each year.

The new arrangement will benefit eligible enterprises with assessable profits, irrespective of their size. However the application of the two-tiered rates is restricted to only one enterprise nominated among connected entities to ensure the benefits will target small and medium enterprises.