Hong Kong: The Great Hong Kong Giveaway - Hong Kong 2008–09 Budget Highlights

Last Updated: 10 March 2008
Article by Karen Yan and Nigel Binnersley

On 27 February 2008, the Hong Kong Financial Secretary presented his budget for the fiscal year 2008–09 against a background of soaring government revenues for the year ending 31 March 2008. The budget surplus is forecast to run to a record HK$115.6 billion (US$14.82 billion). It is not a bad figure for a city of seven million souls.

Investors and taxpayers will benefit from a raft of measures proposed in the budget. A summary of the major proposals are set out below.

Measures for Corporate— Company Profits Tax Reduced from 17.5% to 16.5%

The profits tax rate for corporations will be reduced from the current 17.5% to 16.5%, with effect from the year of assessment 2008–09. The rate cut has been widely anticipated and will serve to enhance Hong Kong's position as one of the most competitive corporate tax regimes in the region, especially in light of the general trend among Hong Kong's neighbours to reduce corporate tax rates.

Additionally, in order to support small and medium enterprises, the Financial Secretary has proposed a one-off tax reduction of 75 percent of profits tax for 2007–08, subject to a ceiling of HK$25,000 (US$3,205). The reduction will be reflected in the taxpayer's final tax payable for 2007–08. The proposal will benefit all 100,000 companies liable to profits tax.

The Financial Secretary further proposed to waive the business registration fee of HK$2,600 (US$334) for 2008–09, to benefit all companies.

Tax losses incurred by a company can be carried forward without time limit.

In order to attract talent from around the world to enhance Hong Kong's competitiveness as a business destination, as well as respond to the public's concerns about Hong Kong's pollution levels, the budget provided measures to encourage corporate responsibility towards environmental protection. The budget granted a 100% profits tax deduction for capital expenditure on environment-friendly machinery and equipment in the first year of purchase and shortened the depreciation period for environment- friendly installations, mainly ancillary to buildings, from 25 years to five years.

Salaries Tax—Salaries Tax Reduced from 16% to 15%

The budget will reduce the standard rate from 16% to 15% and also widen the tax bands for 2008–09.

Property Tax

Property tax is charged at the standard rate of tax on rent received less 20% on an owner of land or property in Hong Kong. The Financial Secretary has proposed reducing the standard rate from 16% to 15% for 2008–09. Property tax is payable in addition to rates. Corporations carrying on business in Hong Kong can also elect to be exempted from property tax and instead be liable to profits tax.

Rates on Properties

Rateable values are derived from the amount of rent that a property can be expected to command in the open market. Rates will remain unchanged at 5% of rateable value. The Financial Secretary will waive rates for 2008–09, subject to a ceiling of HK$5,000 (US$641) per quarter for each rateable tenement.

Charitable Donations

The ceiling for tax-deductible donations under profits tax, salaries tax, and tax under personal assessment will be increased from 25% to 35% of assessable profits or income for 2008–09.

Hotel Accommodation Tax

The Financial Secretary has proposed to waive the hotel accommodation tax to further promote tourism and enhance the competitiveness of the hotel industry.

Duties on Alcoholic Beverages—Waived

Last but not least, duties on wine, beer, and all other alcoholic beverages except hard spirits are waived. This is calculated to cut retail prices by possibly 20–30% and may also help Hong Kong enhance its reputation as a winetrading centre for Asia.


The above measures proposed by the Financial Secretary will enhance Hong Kong's competitiveness as a business destination. Hong Kong has a sound legal system, a free flow of information, a well established strong and effective global network, and entrenched intellectual property rights protection. Hong Kong also boasts an open and highly cost-effective business environment, and has a huge PRC (People's Republic of China) market as its hinterland. These are the key elements for Hong Kong to attract local and overseas investors. Hong Kong is renowned for being an easy place to set up a business. In less than one to two weeks, a Hong Kong company can be up and running. Importantly, each investor has a wide range of business vehicles to choose from when wishing to set up business in Hong Kong. All enterprises are subject to the same rules and low-tax regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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