Hong Kong gazettes bill to expand tax deductions for IP spending
Hong Kong has gazetted a bill to broaden tax deductions for intellectual property expenses, covering purchases from affiliated firms, overseas licensing and prepaid royalties. The government says the move will cut IP trading costs and support the city's goal of becoming a regional IP trade hub.
The Hong Kong government gazetted the Tax (Amendment) (Tax Deduction for Expenditure on Intellectual Property) Bill 2026 on Friday, implementing measures announced in the 2025-26 and 2026-27 budgets to further improve the city's tax regime for intellectual property (IP) and reduce the cost of IP transactions.
A spokesman for the Commerce and Economic Development Bureau said the bill aims to "optimise the tax deduction arrangements for local intellectual property" and "reduce the cost of intellectual property transactions", thereby promoting more IP trading activities and supporting the development of knowledge-intensive industries in Hong Kong.
The bill proposes to relax tax deduction rules for IP, allowing enterprises to claim deductions for capital expenditure incurred on three categories: purchasing qualifying IP from associated companies, such as group affiliates, to encourage multinational corporations to centralise IP management in Hong Kong; buying qualifying IP for use by licensees outside Hong Kong, provided the royalty income is deemed to arise in Hong Kong and is subject to profits tax; and prepaid royalties paid under licensing arrangements for the use of qualifying IP.
The amendments will apply to contracts entered into on or after April 1, 2026, for the purchase of qualifying IP or the right to use it.
To protect Hong Kong's tax base and prevent abuse of the deduction arrangements, the bill includes a series of safeguard measures. These include a principal purpose test for purchases of IP from associated persons, a calculation method for the deductible amount when buying IP from associated persons carrying on business in Hong Kong, and a requirement for independent third-party valuation reports to support deduction claims when capital expenditure on qualifying IP bought from associated persons outside Hong Kong, or on licences obtained from associated persons, exceeds specified thresholds.
The spokesman added that the government has been actively promoting the development of IP trading and financing in Hong Kong. Following the implementation of the "patent box" preferential tax rate, the bill will further improve Hong Kong's IP tax ecosystem, attracting more local and overseas enterprises to use Hong Kong as a platform for cross-border technology transfer and IP financing, in line with the city's goal under the 15th Five-Year Plan to become an international innovation and technology centre and a regional IP trading hub.
The bill will be introduced into the Legislative Council for first and second reading on October 28.
