The Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Ordinance 2024 has been published in the Gazette.

The amendment ordinance implements the Government’s “patent box” tax incentive, which provides tax concessions for qualifying profits derived from eligible intellectual property (IP). It comes into force today and allows taxpayers to apply for the incentive starting from the 2023/24 year of assessment.

Eligible IP includes patents, copyrighted software and new plant variety rights. It may be registered in different places around the world, with profits sourced in Hong Kong benefitting from the tax incentive.

The concessionary tax rate is 5%, substantially lower than the existing normal profits tax rate of 16.5% in Hong Kong.

The Government noted that eligible IP must be developed by the taxpayers themselves. If the research and development (R&D) process involves the acquisition of IPs or the outsourcing of R&D activities, the proportion of profits eligible for the concessionary tax rate may be reduced.

Additionally, enterprises need to obtain local registration for their IP in order to enjoy the concession. This requirement will come into force two years after the “patent box” tax incentive comes into operation.

The Commerce & Economic Development Bureau said the “patent box” regime encourages enterprises to forge ahead with more R&D activities and promotes IP trading, thereby consolidating Hong Kong’s competitiveness as a regional IP trading centre.

The Government said separately that in view of copyright issues arising from the rapid development of artificial intelligence technology, it will soon conduct a consultation to explore further enhancing the protections provided by the Copyright Ordinance, so as to ensure that Hong Kong’s copyright regime remains robust and competitive.