The draft of the Hong Kong Tax Amendment Ordinance 2024 has been published, affecting the minimum tax for multinational corporate groups.

On December 27, the Hong Kong "2024 Tax (Amendment) (Minimum Tax for Multinational Corporate Groups) Bill" was published. The bill aims to implement the international tax reform framework "Base Erosion and Profit Shifting" (BEPS 2.0) announced by the Organisation for Economic Co-operation and Development in October 2021, which will implement a global minimum tax and a minimum top-up tax in Hong Kong starting from 2025. Currently, over 140 jurisdictions, including Hong Kong, have adopted this reform framework to address the risks of erosion of tax base and profit shifting brought about by digital economies. Under BEPS 2.0, large multinational corporate groups with annual consolidated revenue of 7.5 billion euros or more must pay at least a 15% global minimum tax in each jurisdiction where they operate. This is intended to reduce the incentive for large multinational corporate groups to shift profits to low or no-tax jurisdictions and to prevent harmful tax competition among countries or regions to attract investment, creating a more fair tax environment. After implementing the minimum top-up tax in Hong Kong, if the effective tax rate of covered multinational corporate groups in Hong Kong falls below 15%, Hong Kong can levy a top-up tax on their entities in Hong Kong to raise their effective tax rate to 15%. Otherwise, under the rules of BEPS 2.0, other relevant jurisdictions have the right to levy a top-up tax on these low-tax Hong Kong entities. Therefore, implementing the minimum top-up tax can protect Hong Kong's tax jurisdiction and prevent other jurisdictions from taking over. Covered multinational corporate groups will not be required to pay top-up tax on their low-tax Hong Kong entities in other jurisdictions where they operate, reducing their compliance burden. It is estimated that the collection of top-up tax will bring in approximately HK$15 billion in revenue for the Hong Kong government starting from the fiscal year 2027-28. Paul Chan, the Secretary for Financial Services and the Treasury of Hong Kong, stated that as an international financial center and a responsible member of the international community, Hong Kong has always supported global efforts to combat cross-border tax evasion. In a more fair global tax environment, Hong Kong's advantages in attracting business and investment, including its strong connection to the Mainland under the "one country, two systems" framework, a simple and transparent tax system, a mature financial market, an independent judicial system, modern infrastructure, and a pool of high-quality talent, will be further highlighted. Chan added that the Hong Kong government conducted public consultation from last December to March this year. Chambers of commerce, professional bodies, tax professionals, and multinational corporate groups broadly supported the government's legislative proposals. Their input on the design of the minimum top-up tax in Hong Kong, implementation timeline, tax administrative arrangements, and compliance matters was taken into account when drafting the bill. To assist multinational corporate groups in determining their tax responsibilities after implementing the global minimum tax and Hong Kong's minimum top-up tax, the Inland Revenue Department of Hong Kong has set up a dedicated team to provide technical support and will publish guidance on their website regarding common issues.