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Inland Revenue (Amendment) (No. 3) Bill 2018 gazetted
     The Inland Revenue (Amendment) (No. 3) Bill 2018 was gazetted today (April 20) to provide for enhanced tax deduction for expenditure incurred by enterprises on qualifying research and development (R&D) activities, in order to encourage more enterprises to conduct R&D activities in Hong Kong.

     The Bill seeks to amend and restructure section 16B of the Inland Revenue Ordinance (IRO) to provide for a new schedule which sets out the operational details of the basic and enhanced tax deduction regimes for R&D activities. These include the definitions, scope and rates of the basic tax deduction and the enhanced tax deduction. The schedule also contains provisions to empower the Commissioner of Inland Revenue to seek advice from the Commissioner for Innovation and Technology (CIT) on R&D and qualifying R&D claims, as well as to empower CIT to designate local institutions as "designated local research institutions" for tax deduction purposes.

     Subject to the passage of the Bill by the Legislative Council, enterprises will be able to enjoy additional tax deduction for expenditure incurred on domestic R&D. The first $2 million spent on qualifying R&D will enjoy a 300 per cent tax deduction and expenditure beyond that will enjoy a 200 per cent deduction. There is no cap on the amount of enhanced tax deduction.

     "R&D is the fountain of innovation and technology. Commercialisation of R&D results and development of new products and services will help improve people's livelihood, bring about quality jobs and support the development of new industries in Hong Kong. The Government has set a goal to double the Gross Domestic Expenditure on R&D as a percentage of the Gross Domestic Product to 1.5 per cent by 2022. We also aim to progressively reverse the ratio of public sector versus private sector expenditure on R&D from government-led to private-led, to make such investment sustainable. The proposals in the Bill will serve to achieve the above objectives," a government spokesman said.

     The proposal to provide enhanced tax deduction for enterprises' qualifying expenditure on R&D was an initiative announced in the Policy Address released in October 2017.

     At present, the Inland Revenue Ordinance provides 100 per cent deduction for expenditure on R&D, as well as 100 per cent deduction for capital expenditure incurred on the purchase of plant or machinery for R&D in the year it was incurred.

     The Bill will be introduced into the Legislative Council for first and second readings on May 2.
Ends/Friday, April 20, 2018
Issued at HKT 16:15
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