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Will Hong Kong implement the world's lowest tax rate and self-destruct the "low tax paradise" sign? Expert material advantage

2022-02-23T11:06:22.377Z


Financial Secretary Paul Chan read out a new Budget today (23rd), which mentioned that the government should increase revenue. In addition to the plan to introduce a progressive rating system for residential properties in 2024/25, another key point is


Financial Secretary Chan Mo-po read out a new Budget today (23rd), which mentioned that the government wants to increase revenue. In addition to the plan to introduce a progressive rating system for residential properties in 2024/25, another key additional Sources of taxation, will implement the international tax reform package formulated by the Organisation for Economic Co-operation and Development (OECD) to address base erosion and profit shifting (BEPS 2.0).


The new budget mentions that from the 2024/25 assessment year, large multinational conglomerates with a turnover of at least 750 million euros will be levied a local minimum top-up tax to ensure that their effective tax rate reaches the level of the world's lowest effective tax rate of 15% , in order to protect the taxation rights of Hong Kong.

The Hong Kong government roughly estimates that the top-up tax involves $15 billion a year.

Deng Weiwen, deputy managing partner of Deloitte China Southern China Tax and Business Consulting, said that BEPS 2.0 proposed in this budget has deepened the general public's understanding, but in fact, the G7 finance ministers reached a consensus in June last year to promote the "15% global After the historic agreement on "Minimum Corporate Tax", the relevant arrangements have been in full swing in the past period of time. Many countries and major regions have joined BEPS 2.0, and Hong Kong has also carried out relevant work.

In June last year, the finance ministers of the Group of Seven (G7) countries reached a historic agreement to promote the "15% global minimum corporate tax".

(AP)

Hong Kong has always regarded "low tax rate" as one of its competitiveness. Why should Hong Kong join the OCED's global minimum effective tax rate arrangement?

Deng Weiwen explained that although the profit tax rate in Hong Kong is 16.5%, when companies file tax returns, some income such as overseas income, capital income, etc., after deduction and calculation, the actual effective tax rate compared to their income is less than 16.5%, or even as low as 10% level.

Therefore, the implementation of the world's lowest effective tax rate of 15% will help the Hong Kong government's treasury revenue to increase.

Thousands of companies expected to pay top-up tax

The government announced in the Budget that BEPS 2.0 will be implemented in 2024/25. Deng Weiwen estimated that, according to the large multinational enterprise groups with a turnover of at least 750 million euros, there are about 200 to 300 groups headquartered in Hong Kong. There are 3,000 groups with headquarters and operations in Hong Kong, and it is estimated that together with their subsidiaries, tens of thousands of companies are involved.

Deng Weiwen pointed out that based on customer privacy, and many large companies have customers of the Big Four accountants, they failed to disclose which companies will be affected by BEPS 2.0, only referring to the relatively large scale of companies in the banking, insurance and real estate industries. It is easier to be included in the scope of BEPS 2.0.

He added that since the OCED announced the BEPS 2.0 plan, the Hong Kong government has already "finished" the market, discussed the implementation details, and made an estimate. Therefore, this time, it is predicted that the top-up tax will be as high as 15 billion yuan.

Deng Weiwen, deputy managing partner of Deloitte China Southern China tax and business consulting, said that the implementation of BEPS 2.0 in Hong Kong is unlikely to affect Hong Kong's tax competitiveness.

(provided by respondents)

The world's major regions implement the lowest tax rate, and the attractiveness of the port remains unchanged

Hong Kong has always been based on low tax rate and simple tax system as its core competitiveness. Deng Weiwen believes that compared with other countries and cities, Hong Kong only has profits tax, salaries tax, stamp duty, etc. There are not many indirect taxes such as sales tax and value-added tax, and it still maintains a simple tax system. .

With the implementation of BEPS 2.0 in various major regions, Tang Weiwen believes that for enterprises, the lower the tax rate, the better, but the reality is that "everywhere is the same", and he does not think Hong Kong will lose its competitiveness due to this.

According to reports, a government source said that there are currently about 200 multinational companies headquartered in Hong Kong and covered by BEPS 2.0, but some of them have paid an effective tax rate of more than 15% and may not need to make up the tax.

Under the current two-tiered profits tax system in Hong Kong, subsequent assessable profits of a corporation and an unincorporated business exceeding $2 million will continue to be taxed at 16.5% and the standard rate of 15% respectively.

(Photo by Li Enci)

Under the current two-tiered profits tax system in Hong Kong, the profits tax rate for the first $2 million of assessable profits of corporations and unincorporated businesses (mainly partnerships and sole proprietorships) will be reduced to 8.25% respectively (Schedule 8 of the Inland Revenue Ordinance). half of the specified rate) and 7.5% (half of the standard rate).

Subsequent assessable profits in excess of $2 million from incorporated and unincorporated businesses continue to be taxed at 16.5% and the standard rate of 15% respectively.

Hong Kong and more than 130 tax jurisdictions around the world pledged last year to implement the OECD's international tax reform package to tackle base erosion and profit shifting (BEPS 2.0).

The global minimum effective tax rate of BEPS 2.0 only covers large multinational conglomerates with a turnover of at least EUR 750 million, and will not affect small and medium-sized enterprises in Hong Kong.

The government has communicated with affected companies on how to implement BEPS 2.0, and clarified the government's principles, including maintaining the advantages of Hong Kong's tax system being simple, clear and transparent, retaining taxation from territorial sources, etc., as well as minimizing the compliance burden on companies.

The Hong Kong government intends to submit legislative proposals to the Legislative Council in the second half of this year to implement relevant provisions such as the global minimum effective tax rate in accordance with international consensus.

Source: hk1

All news articles on 2022-02-23

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