Executive summary
On 15 June 2022, the Inland Revenue (Amendment) (Tax Concessions for Certain Shipping-related Activities) Bill 2022 was submitted to Hong Kong’s Legislative Council. The bill introduces a dedicated tax concession regime offering tax incentives to qualifying shipping commercial principals (i.e., ship agents, ship managers and ship brokers) in Hong Kong.
This Alert summarizes the key provisions of the tax regime.
Detailed discussion
Subject to certain anti-avoidance provisions, the proposed tax concession regime provides that:
Qualifying profits of a qualifying shipping commercial principal derived from carrying out a qualifying activity in Hong Kong will be taxed at a concessionary tax rate at 8.25%.
Qualifying profits derived by a qualifying shipping commercial principal from carrying out a qualifying activity for an associated shipping enterprise,1 which is entitled to a concessionary tax rate or income exemption, will also be eligible for the same tax concession as the associated shipping enterprise.
The proposed tax concessions will apply to sums received or accrued on or after 1 April 2022. Taxpayers must elect in writing if they plan to avail themselves of the above tax concessions. Such an election, once made, is irrevocable for so long as the taxpayer remains as a qualifying shipping commercial principal.
Eligibility to the proposed tax concession regime
The table below lists out the qualifying requirements for the proposed tax concession regime:
Qualifying requirements | Details |
Qualifying shipping commercial principal |
|
Qualifying activity |
|
Substance requirement |
In addition to the above mininum thresholds, an "adequate" number of employees and relevant expenses incurred should also be satisfied. |
Specific anti-avoidance provisions
The Bill contains the following specific anti-avoidance provisions that would operate to:
Reassess a qualifying shipping commercial principal based on the arm’s-length profits that would have been accrued to it if it did not conduct business transactions with its associated parties on an arm’s-length basis.
Deny a qualifying shipping commercial principal the above tax concessions if the main purpose, or one of the main purposes, of entering into an arrangement is to obtain a tax benefit under the Inland Revenue Ordinance or a tax treaty.
Limit the tax deduction for service fees paid by a party who is subject to tax at full-rate at 16.5% to its connected qualifying shipping commercial principal who is subject to concessionary tax rate at 8.25%.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
- David Chan
- Paul Ho, Financial Services
Ernst & Young LLP (United States), Hong Kong Tax Desk, New York
- Charlotte Wong
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
- Chris Finnerty
- Gagan Malik
- Bee-Khun Yap
- Dhara Sampat
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago
- Pongpat Kitsanayothin
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.