Hong Kong passes legislation to implement global minimum tax and Hong Kong minimum top-up tax, aiming to tackle tax evasion risks and maintain its competitiveness as a business hub. The new measures, effective from January 1, 2025, will bring in an estimated $15 billion in additional revenue annually.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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The Government of the Hong Kong Special Administrative Region ("HKSARG") has greeted the passage of the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024 by the Legislative Council on May 28, 2024. This legislative milestone paves the way for the implementation of the global minimum tax ("GMT") and the Hong Kong minimum top-up tax ("HKMTT") from January 1, 2025, onwards, in line with the Base Erosion and Profit Shifting ("BEPS") 2.0 package by the OECD to mitigate the risks of tax evasion in the digital economy.
The Secretary for Financial Services and the Treasury, Mr. Christopher Hui, underscored the significance of these measures in combating cross-border tax evasion and securing Hong Kong's taxing rights. He highlighted that a 15% GMT will apply to multinational enterprise ("MNE") groups with annual consolidated revenues of at least 750 million euros, which will help to prevent countries from competing for capital by lowering their corporate income tax rates. The HKMTT prioritizes Hong Kong for collecting top-up taxes from entities that do not meet the 15% threshold, with other jurisdictions collecting the taxes only if Hong Kong does not. It is projected to generate additional annual revenue of approximately $15 billion between 2027 and 2028.
BEPS 2.0 mandates that in-scope MNE groups must pay at least 15% GMT on profits from all jurisdictions where they operate. The HKMTT ensures Hong Kong's priority in collecting top-up taxes, with other jurisdictions only collecting them if Hong Kong cannot enforce the 15% threshold. The new regimes incorporate OECD-developed safe harbors to reduce compliance burdens, shorter record-keeping periods, the 'sole or dominant purpose test' instead of the 'main purpose test', allowable tax credits for qualified domestic minimum top-up taxes, and the application of existing tax administration mechanisms under the Inland Revenue Ordinance ("IRO").
To facilitate compliance, the Inland Revenue Department ("IRD") has set up a dedicated team for technical support and published online guidance. Further information is available on the IRD's dedicated webpage.
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