With an estimated HK$127 billion fiscal deficit for the financial year 2023-24 and HK$708 billion of fiscal reserves, CPA Australia urges the Government to make announcements in the upcoming budget that balance the need to address the deficit with supporting the city's economic rejuvenation and sustainable development.

Attracting regional headquarters and investments

To improve Hong Kong's public finances, Mr Anthony Lau, co-chairperson of CPA Australia's Taxation Committee for Greater China, believes it's crucial for the government to increase its revenue by enhancing the city's overall attractiveness to companies, investment and talent, "Facing global uncertainties and volatility, many companies are seeking growth opportunities in Asia. To take advantage of this, Hong Kong should take steps to attract these companies to establish their regional headquarters (RHQ) in the city, by offering a concessional tax rate, for example 8.25 per cent."

"Gulf Cooperation Council (GCC) countries present another opportunity for Hong Kong. Through more government-to-government dialogue and closer bilateral cooperation, the Government can do much to attract more enterprises and investment from the GCC. "We suggest the government develop a bundle of preferential tax incentives to encourage more GCC enterprises to set up in Hong Kong. This can include a two-year exemption on profits tax for GCC companies that establish their RHQs in the city. To stimulate the capital market, we suggest offering a three-year exemption on stamp duty on the shares of GCC companies traded on the Hong Kong Stock Exchange. A similar stamp duty extension could also be given to the shares of Hong Kong private and listed companies GCC's single-family offices holding investment vehicles (FIHV) invest in.

"To strengthen the role of Hong Kong as a super connector between GCC and Mainland, the government can discuss with mainland authorities the possibility of exempting Mainland withholding tax on interest and dividends that GCC sovereign wealth funds receive from investments in strategic industries through Hong Kong such as sustainable development and emerging technologies."

Building a green and vibrant city

Lau also emphasises on the importance of enhancing Hong Kong's appeal as a green and vibrant city for business and tourists alike, "The government should continue to boost the green economy as sustainability has become a crucial factor for investment decisions. For example, the government should extend the Green and Sustainable Finance Grant Scheme to subsidise eligible bond issuers and loan borrowers, which is due to expire this year. The Government may also consider offering a 150 per cent super deduction for the cost of acquiring energy-saving machinery and equipment. A super deduction could also apply to the interest expenses incurred on green bonds issued by Hong Kong corporations.

"To achieve carbon neutrality, the Government should study the possibility of introducing a carbon tax on corporations emitting significant greenhouse gases in Hong Kong starting from 2026 at the earliest. We also suggest increasing fines and penalties for environmental damage."

To promote the mega event economy in Hong Kong, Lau suggests the Government offer a 150 per cent super deduction for event sponsorship expenses.

Stimulating financial services and reviewing tax system

Ms Karina Wong, Deputy Chairperson of CPA Australia's Taxation Committee for Greater China suggests the Government implement additional measures to attract family offices and stimulate growth in the financial sectors, "When determining if the eligible FIHV meet the minimum asset under management requirement of HK$240 million, the government should consider allowing a multiplier of 1.5 be applied to investments in Hong Kong listed shares, subject to a cap."

"Further, we suggest broadening the concessionary tax regime for family offices by including fixed-income products, antiques, artwork, and virtual assets in tax-exempt investments. We also suggest offering a 8.25 per cent concessionary tax rate for fee income derived by fund and family office managers."

Wong also highlights the urgency of Hong Kong signing more Comprehensive Avoidance of Double Taxation Agreement (CDTA) with jurisdictions to minimise double taxation. This is especially so for Australia, "The recently proposed changes to Australia's tax residency rules may significantly increase the tax burden on some of the 100,000 Australian expats residing in Hong Kong due to there being no CDTA signed between two jurisdictions.

"This year, the Government will implement the new Capital Investment Entrant Scheme (CIES) to enrich the talent pool and attract new capital to Hong Kong. If tax changes similar to what is being proposed in Australia are implemented in other non-CDTA jurisdictions, it may discourage talented people and high-net-worth individuals from those jurisdictions from moving to Hong Kong. Therefore, we urge the Government to increase their efforts to negotiate CDTA with other jurisdictions."

To keep pace with the evolving economic and finance systems, an ageing population and to maintain healthy public finances, Wong reiterated CPA Australia's call for the Government to undertake a comprehensive review of the tax system and evaluate reform options.

Supporting SMEs to recover

"While the overall economy has been recovering, many SMEs need more time to return to normalcy. Some of them are still facing challenges such as cash flow difficulties and labour shortages," Says Mr Janssen Chan, co-chairperson of CPA Australia's Taxation Committee for Greater China.

Chan also says, "We suggest extending the application period of the SME Financing Guarantee Loan Scheme on the 80 per cent and 90 per cent Guarantee Product, and Special 100 per cent Loan Guarantee for another 12 months. This aim to improve SME access to finance, with applications currently closing next month."

"To assist SMEs overcome their hiring difficulties, we suggest the Government introduce an additional tax deduction on salaries for employees aged 60 or over. We also suggest the Government review the Sector-specific Labour Importation Schemes and consider broadening its scope to cover more sectors in severe labour shortage.

To assist imported labour obtain the licenses required to work in Hong Kong, we suggest the government provide training subsidies to employers to help their imported workers meet relevant licensing requirements."

Improving living standards and encouraging childbirth

CPA Australia suggests the Government implement relief measures to enhance citizens' quality of life and encourage childbirth. Mr Adam Chiu, a member of CPA Australia's Taxation Committee for Greater China says: "The Government should explore measures to promote healthy lifestyles, such as introducing tax deduction up to HK$6,000 for sports-related expenses."

He further suggests, "To alleviate the financial burden for taxpayers, we suggest increasing the basic allowance to HK$150,000, raising the deduction cap on home loan interest expense to HK$150,000 and increase other personal allowances under salaries tax in subsequent financial years, at the very least in line with inflation."

In terms of policies promoting childbirth, Chiu emphasises the substantial financial strain that childcare places on families. "It is crucial for the government to address this challenge by introducing supportive measures. These measures could involve introducing a childcare expense allowance with a cap of HK$60,000, or providing lower- and middle-income households a subsidy to meet the cost of child care and early childhood education."

Appendix – Key Recommendations for Hong Kong Budget 2024-25

1. Enhancing Hong Kong's competitiveness Introducing a concessionary tax rate, for example of 8.25 per cent, for companies that establish regional headquarters in Hong Kong, subject to any BEPS requirements Offering a two-year profits tax exemption to GCC companies that establish regional headquarters in Hong Kong Offering a three-year exemption on stamp duty for shares of GCC companies traded on the Hong Kong Stock Exchange Offering a three-year exemption on stamp duty for shares of Hong Kong private and listed companies that are invested by family-held investment vehicles managed by single family offices of GCC families introducing a 150 per cent super deduction for sponsorship expenses associated with large-scale events (as defined by the Leisure and Cultural Services Department) in arts, culture and sports that involve international parties

2. Promoting the green economy Extending the Green and Sustainable Finance Grant Scheme beyond its current expiration in 2024 Introducing a 150 per cent super deduction on interest expenses incurred on the green bonds issued by Hong Kong corporations Introducing tax exemption on interest income generated from green bond issued by Hong Kong corporations Introducing a carbon tax on corporations that emit a significant amount of greenhouse gas in Hong Kong at the earliest 2026, subject to stakeholder consultation. For example, the initial tax rate could be set at HK$100/tCO2e for companies emitting over 25,000 tCO2e. Increasing the first registration tax rate on non-electric vehicles with a taxable value exceeding HK$500,000.

3. Stimulating financial services and reviewing tax system Reducing the stamp duty on stock transactions. Options for reducing the rate include aligning Hong Kong's rate with mainland China (being 0.05 per cent on the seller only) Applying a multiplier of 1.5 to investments into Hong Kong listed shares, subject to a cap, when determining if a family-owned investment holding vehicle (FIHV) meets the HK$240 million minimum assets under management (AUM) requirement to be eligible for tax concessions for FIHV managed by single family offices Enhancing the concessionary tax regime for family offices by broadening the scope of tax-exempt investments, to include for example to fixed-income products, antiques, artwork and virtual assets, etc. Offering incentives such as preferential tax treatment for fee income derived by a fund or family office manager from managing and advising funds and family offices Increasing the number of free trade agreements and Comprehensive Avoidance of Double Taxation Agreement(CDTAs), for example, pushing forward the negotiation with Australia on a CDTA. Commissioning a comprehensive "root and branch" review of the tax system.

4. Supporting SMEs Extending the application period of the SME Financing Guarantee Loan Scheme on the 80 per cent Guarantee Product, 90 per cent Guarantee Product, and Special 100 per cent Loan Guarantee for another 12 months. Introducing an additional tax deduction on salaries expenditure for companies hiring employees aged 60 or over Increasing the 100 per cent tax rebate on the 2023/24 final profits tax, subject to a ceiling of HK10,000 Reviewing the Sector-specific Labour Importation Schemes and considering broadening the scope to cover other sectors experiencing severe labour shortages Providing training subsidies to employers who import workers from other cities within the Greater Bay Area so that they are licensed to work in Hong Kong.

5. Improving living standards and encouraging childbirth Introduce tax deduction up to HK$6,000 for sports-related expenses to promote physical health and wellness. Maintain the 100 per cent tax rebate on the 2023/24 final salaries tax, subject to a ceiling of HK$10,000 Increase personal basic allowance to HK$150,000 increase child allowance to HK$150,000 per child increase married person's allowance to HK$300,000 Increase other personal allowances under salaries tax, at least in line with inflation, in subsequent financial years Increase the cap on the deduction of home loan interest to HK$150,000 Increase the cap on the deduction of domestic rent to HK$150,000 Introduce a childcare expense allowance with a maximum deduction of HK$60,000. Introduce a childcare and early childhood education subsidy to lower- and middle-income households. Provide subsidies to childcare providers that establish facilities in underserved areas

6. Diversifying the economy Broadening the scope of qualifying R&D expenditures to include expenditures on R&D activities outsourced to related parties outside of Hong Kong, especially to other parts of the GBA Introducing tax incentives for digital transformation-related investments. Allowing tax deductions on non-monetary philanthropy donations, such as artwork, antiques, collectibles, etc. where supported by an independent expert valuation Increasing or eliminating the cap on tax deductions for donations to registered charitable institutions under section 88 of the Inland Revenue Ordinance

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About CPA Australia

CPA Australia is one of the largest professional accounting bodies in the world, with more than 172,000 members in over 100 countries and regions, including more than 22,200 members in Greater China. CPA Australia has been operating in Hong Kong since 1955 and opened our Hong Kong office in 1989. Our core services include education, training, technical support and advocacy. CPA Australia provides thought leadership on issues affecting the accounting profession and the public interest. We engage with governments, regulators and industries to advocate policies that stimulate sustainable economic growth and have positive business and public outcomes. Find out more at cpaaustralia.com.au

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