2021-22 Hong Kong Budget Analysis
On 24 February 2021, the Financial Secretary of Hong Kong announced the Budget for the fiscal year 2021-22. The forecast is that for the fiscal year 2020-21, there will be a deficit of around HKD 257.6 billion, and that the fiscal reserves are expected to become HKD 902.7 billion by 31 March 2021. The focus of this Budget has been on stabilising the economy and relieving people’s burden and stands in big contrast to the 2020-21 Hong Kong Budget.
Looking ahead, the Financial Secretary is of the view that the global economy is full of uncertainty due to several factors, such as the progress and result of the mass vaccination campaign around the world, the development of US-China trade relations under the new US administration, the geopolitical situations such as Brexit and possible financial risks associated with the surging global public debt.
Nevertheless, it is expected that the Hong Kong economy will resume positive growth in 2021 but the progress of economic recovery will hinge on the development of the epidemic. Also, as we wrote in our article about increasing government expenditure and the debt tsunami, the Hong Kong debt to GDP ratio is rather low compared to many other jurisdictions.
Same as previous years, the Financial Secretary proposed a number of support and relief measures in his 2021-22 Budget with a view to alleviate the financial burdens of enterprises and individuals.
Key Support & Relief Measures for Enterprises
1. Reduction of profits tax for the year of assessment 2020-21 by 100%, subject to a ceiling of HKD 10,000 per case;
2. Waiver of business registration fees for the fiscal year 2021-22; and
3. Provision of financial supports by means of:
- Reduced rates for non-domestic properties for all four quarters of 2021-22, subject to a ceiling of HKD 5,000 per quarter in the first two quarters and a ceiling of HKD 2,000 per quarter in the remaining two quarters for each rateable property;
- Extension of a 75% reduction of water and sewage charges payable by non-domestic households for eight months starting from April 2021, subject to a monthly cap of HKD 20,000 and HKD 12,500 respectively per household;
- Extension of a 75% rental or fee concession for eligible tenants of government properties and eligible short-term tenancies and waivers under the Lands Department for six months starting from April 2021; and
- Extension of a 100% guarantee low-interest loan for enterprises to the end of 2021, raising the loan ceiling to HKD 6 million, extend repayment period and principal moratorium.
Key Support & Relief Measures for Individuals
1. Reduction of salaries tax and tax under personal assessment for the year of assessment 2020-21 by 100%, subject to a ceiling of HKD 10,000 per case
2. Waiver of the government rates charged on property owners for a period of all four quarters during the fiscal year 2020-21, subject to a ceiling of HKD 1,500 in the first two quarters and HKD 1,000 per quarter in the remaining two quarters.
Please note that most of the above-mentioned measures are subject to enactment of legislation before effective.
2021-22 Hong Kong Budget Other Major Tax Related Issues
1. Global minimum tax rate
The Organisation for Economic Co-operation and Development (OECD) continues to work on the imposing of a global minimum tax rate. Under the proposal, if the tax paid by a multinational corporation in Hong Kong is lower than the new global minimum tax rate, its parent company will be subject to additional taxes or defensive measures imposed by the jurisdictions where they are located.
In the view of maintaining Hong Kong’s competitiveness as a global financial and business hub, the Hong Kong government has stated that:
- while safeguarding Hong Kong’s taxing right by implementing the global minimum tax rate, the Hong Kong government will at the same time minimise the compliance burden on affected corporations;
- as the global minimum tax rate is only applicable to large multinational corporations, the Hong Kong government will minimise the impact on local small and medium enterprises and to attract foreign business from incorporating a local Hong Kong company; and
- the Hong Kong government will keep up the efforts in improving Hong Kong’s business environment and enhancing its competitiveness.
2. Introducing more competitive tax arrangements for private equity funds
In order to promote the development of private equity funds in Hong Kong, the Hong Kong government has introduced an amendment bill to provide tax concessions for carried interest issued by a private equity funds operating in Hong Kong, and the relevant arrangement will be applicable starting from 2020-21 upon legislative enactment.
3. Offering 50% profits tax concession to eligible insurance business
The Hong Kong government is currently undertaking a series of legislative work to provide a 50% profits tax concession to eligible insurance businesses including the marine insurance industry.
4. Family office business
To enhance Hong Kong’s attractiveness as a hub for family offices, the Hong Kong government will review the relevant tax arrangements for family offices interested in establishing a presence in Hong Kong.
5. Stamp duty
To introduce measures to facilitate the development of the securities market, so as to take Hong Kong’s financial services sector to the next level, the Hong Kong government have decided to introduce a bill to raise the Stamp Duty rate on stock transfers from the current 0.1% to 0.13%.
2021-22 Hong Kong Budget Analysis Conclusion
Hong Kong is likely to recover from the epidemic during the second half of 2021. Especially, when the borders with Mainland China will fully reopen again, a boost of the economy is to be expected. The support and relief measures proposed in the Budget will make the recovery process even faster.