In a move to align with international tax standards, Hong Kong has gazette the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024. This legislation introduces a global minimum tax of 15% for multinational enterprises (MNEs), ensuring fairness and curbing profit shifting to low-tax jurisdictions.
What is the Bill About?
The Inland Revenue (Amendment) Bill 2024, gazetted on December 27, 2024, seeks to implement the Base Erosion and Profit Shifting (BEPS) 2.0 framework developed by the Organisation for Economic Co-operation and Development (OECD). BEPS 2.0 is a global initiative to combat tax evasion and create a level playing field for businesses worldwide. Over 140 jurisdictions, including Hong Kong, have endorsed this framework.
The global minimum tax requires large MNE groups—those with annual consolidated revenue of 750 million euros or more—to pay at least 15% tax in every jurisdiction where they operate. This measure aims to:
- Prevent profit-shifting to tax havens.
- Reduce harmful tax competition among countries.
- Create a fairer taxation environment for all.
What is the Hong Kong Minimum Top-Up Tax (HKMTT)?
Under the new Bill, Hong Kong will implement the HKMTT from 2025. This means:
- If an in-scope MNE group’s effective tax rate in Hong Kong falls below 15%, the Hong Kong government will collect a top-up tax to bring it to the global minimum.
- If Hong Kong does not impose this tax, other jurisdictions can collect it instead, potentially reducing Hong Kong’s taxing rights.
By introducing the HKMTT, Hong Kong safeguards its taxing authority, retains revenue locally, and eliminates the need for MNEs to pay top-up tax in other countries.
Economic Impact and Benefits
The Bill is expected to generate HKD 15 billion annually for the Hong Kong government starting from 2027-28. Beyond the financial boost, the legislation strengthens Hong Kong’s reputation as a:
- Responsible global player committed to combating tax evasion.
- Attractive financial hub with a transparent and simple tax system.
Secretary for Financial Services and the Treasury, Mr. Christopher Hui, emphasized Hong Kong’s competitive advantages:
“In a fairer global taxation environment, our strong connection with the world, simple tax regime, independent judicial system, and quality talent pool will only become more attractive.”
Stakeholder Support and Guidance
The government conducted public consultations earlier this year and received broad support from business chambers, tax professionals, and multinational groups. Their input shaped the Bill’s implementation timeline, compliance processes, and administrative design.
To help businesses adapt, the Inland Revenue Department (IRD) has:
- Established a dedicated team to provide technical support.
- Announced plans to publish online guidance to address common concerns.
What’s Next?
The Bill will be introduced to the Legislative Council for its first reading on January 8, 2025. The global minimum tax and HKMTT will officially take effect from 2025, signaling a new era of global tax cooperation.
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