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Hong Kong tax incentives

In order to promote Hong Kong as an international research & development (R&D) hub and attract more R&D activities to be performed in Hong Kong, the Hong Kong government has recently enacted new tax regulations which provide tax incentives to qualifying R&D expenditures incurred on or after 1 April 2018.

How does ESOP work?

Employee Share Option Plan (ESOP) refers to the mechanism by which a company (which can be either private or listed) offers to one of more employee(s) the right to buy a specific number (or a specific percentage) of shares in the company, at a specific price (the exercise price) and during a specified period, usually within a number of years (the exercise period).

During such exercise period, the employee is free to exercise or not such option at a price which is determined by the company at the time of the grant. This is an option given to the employee, not an obligation.

The Hong Kong government issued on 18 September 2018 a revision to the immigration policy for entry of non-local dependants (the ‘‘New Policy’’), easing the visa rules for legally-recognized same-sex couples and civil partners willing to work or reside in Hong Kong.

Traditionally, the definition of a ‘‘legal spouse’’ was confined to heterosexual married couples only. Based on this restrictive definition, and under the previous immigration policy in force, dependant visa applications were only open to heterosexual married couples with an eligible sponsor (i.e. Hong Kong permanent residents or foreigners with a valid employment visa).

The Chinese government has recently released the draft amendments to the Individual Income Tax (“IIT”) Law to the public for consultation. The proposed amendments comprise broad changes to the IIT system and the salient proposed changes are as follows:

Definition of resident

The draft amendments introduce the internationally recognized “183-day” test for determining whether an individual is a Chinese tax resident, which will make it much easier for a non-China-domiciled individual to be considered a Chinese resident for tax purposes. According to the proposed changes, if a non-China-domiciled individual stays in China for 183 days or more (instead of a “full year” as defined under the existing system) in a calendar year, he/she is considered as a China tax resident who is subject to IIT on his/her China sourced and non-China sourced income. If he/she stays in China for less than 183 days, he/she is subject to IIT on his/her China sourced income, unless he/she is exempted from IIT under the relevant provision in a tax treaty (if applicable).