Lawmakers have expressed broad support for Hong Kong’s proposed tax incentives aimed at attracting large innovative companies, but many questioned whether the planned five-year concession period would be sufficient to encourage firms to establish headquarters or expand operations in the city.

During a meeting of the Legislative Council’s financial affairs panel, Secretary for Financial Services and the Treasury Christopher Hui Ching-yu outlined the government’s plan to introduce preferential profits tax rates of either 5 percent or 8.25 percent for qualifying companies. These rates represent roughly half of the city’s standard corporate tax rate of 16.5 percent and would apply for up to five years. The incentives would target specific sectors, including advanced manufacturing, finance, logistics, and supply-chain management, with eligibility restricted to very large firms that have substantial expansion plans and hiring commitments in Hong Kong. However, Hui did not provide detailed qualifying thresholds, noting that these would differ across industries.

Despite endorsing the initiative, legislators voiced reservations about the relatively short duration of the tax breaks. Lawmaker Alan Chan Chung-yee highlighted that many innovative companies typically do not generate profits in their first decade and therefore see limited benefit from a five-year tax concession. He suggested extending the period to 10 or 15 years to better align with the growth timelines of such enterprises.

Nick Chan Hiu-fung, another legislator, emphasized the long-term perspective of chief financial officers at major multinational technology firms considering regional headquarters relocation. He noted that a five-year incentive might be insufficient to persuade boards to commit to moving operations to Hong Kong.

In response, Hui defended the five-year timeframe, referencing similar incentives offered by Singapore. He also pointed out that companies could apply to renew their preferential tax status for an additional five years if they continued to meet expansion and employment criteria. Hui underscored that tax incentives were only one of several factors companies consider when choosing to operate in Hong Kong, with business opportunities playing an important role.

Concerns were also raised about potential abuse of the tax scheme. Unlike previous industry-specific incentives granted automatically upon meeting certain thresholds, the new plan would require applicants to obtain approval from a committee chaired by Financial Secretary Paul Chan Mo-po. Hui explained that this approval process, coupled with mandatory reporting on expansion and hiring commitments, would act as safeguards against tax avoidance.

Paul Chan previously indicated that several leading firms from emerging industries were expected to establish a presence in Hong Kong in the near future. The tax incentive scheme is proposed to take effect starting with the tax year on April 1, pending legislative approval.