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Enhanced tax deduction for R&D Expenditures

In the 2017 Policy Address, the Chief Executive announced that enhanced tax deduction will be provided 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 deduction will be 300% for the first $2 million of the aggregate amount of payments made to “designated local research institutions”(DLRI) for “qualifying R&D activities” and “qualifying expenditures” incurred by the enterprises, and 200% for the remaining amount. There is no cap on the amount of enhanced tax deduction.

All taxation matters related to the enhanced tax deduction for qualifying R&D activities undertaken by DLRIs under the Inland Revenue Ordinance (IRO) are under the purview of the Inland Revenue Department (IRD) and are subject to the IRD’s consideration, handling and decision under the IRO. For further information, please visit the IRD’s website.

 

Designated Local Research Institutions

As part of the enhanced tax deduction initiative, the Commissioner for Innovation and Technology is empowered to designate any university or college located in Hong Kong or any other “local institution” (i.e. an institute, association, organisation or corporation that is located in Hong Kong) that undertakes qualifying R&D activities in Hong Kong as DLRIs for tax deduction purpose.

Companies which engage DLRIs to undertake “qualifying R&D activities” may claim enhanced tax deduction for the payments made.

Where a “local institution” becomes a DLRI within six months after payments were made by companies, the companies may claim enhanced tax deduction in respect of such payments.

The Innovation and Technology Commission (ITC) has set up the “DLRI Secretariat” (the Secretariat) to handle matters relating to applications for designation as DLRI. Please refer to the Apply for DLRI designation page for details.