Inland Revenue (Amendment) (Tax Deductions for Intellectual Property Expenditure) Bill 2026 gazetted
The Government published the Inland Revenue (Amendment) (Tax Deductions for Intellectual Property Expenditure) Bill 2026 (the Bill) today (October 16) to suitably relax the tax deduction arrangements for relevant capital expenditure incurred by enterprises for purchasing Intellectual Property (IP) rights or for the licence to use IP rights.
A spokesman for the Commerce and Economic Development Bureau said, "The Bill puts into effect the measure announced in the 2025-26 and 2026-27 Budgets to further enhance the tax deduction arrangements for local IP, lowering the costs of IP transactions to facilitate more IP trading activities and support the development of knowledgeintensive industries in Hong Kong."
The Bill proposes to relax the IP-related tax deduction arrangements by allowing tax deductions for relevant capital expenditure incurred by enterprises in respect of the following:
(1) Purchase of eligible IP rights from associates: allowing tax deduction for capital expenditure incurred by enterprises for the purchase of eligible IP rights from associates, such as group affiliates, to encourage multinational enterprises to centralise their IP management in Hong Kong, and to facilitate domestic intra-group transfer and business activities;
(2)Purchase of eligible IP rights which are used by a licensee outside Hong Kong: where the licensing income from the eligible IP rights is regarded as arising in or derived from Hong Kong under the foreign-sourced income exemption regime and is chargeable to profits tax in Hong Kong, the capital expenditure incurred for the purchase of the IP rights may also be allowed for tax deduction on a proportionate basis; and
(3)Upfront licence fee for the use of eligible IP rights in a licensing arrangement: to further encourage IP development and commercialisation, tax deduction can be allowed for upfront licence fees incurred by enterprises for the use of eligible IP rights in a licensing arrangement.
The amendments proposed in the Bill will apply to contracts entered into on or after April 1, 2026, for the purchase of eligible IP rights or for the licence to use eligible IP rights.
To safeguard Hong Kong's tax base and prevent abuse of the tax deduction arrangements, the Bill provides for a series of rigorous safeguard measures. These include introducing a main purpose test for the purchase of IP rights from associates, providing for the calculation of the deduction amount for the capital expenditure incurred for the purchase of IP rights from Hong Kong associates, and where the capital expenditure incurred for purchasing eligible IP rights from non-Hong Kong business associates or acquiring a licence from associates for the use of eligible IP rights exceeds a specified threshold, a third-party independent valuation report is required to substantiate the tax deduction claim, so as to prevent excessive tax deduction.
The spokesman continued, "The Government has been actively promoting the development of IP trading and financing in Hong Kong. Following the implementation of the concessionary tax rate under the 'patent box' initiative, the Bill will further enhance Hong Kong's IP tax ecosystem. The introduction of more flexible tax deduction arrangements, whilst upholding our tax principles, will incentivise more local and overseas enterprises to select Hong Kong as their preferred platform for cross-border technology transfer and IP financing, thereby bolstering Hong Kong's development into an international innovation and technology centre and a regional IP trading centre, in alignment with the National 15th Five-Year Plan."
The Bill will be introduced into the Legislative Council for First Reading and Second Reading on October 28.
Source: AI-found images
