Incentives for Doing Business in Hong Kong

Hong Kong offers a range of incentives that cater to the economic objectives of the Special Administrative Region (SAR). These incentives are open to various business groups, including family offices and small enterprises, to foster robust economic growth and development within the region.

Contributing Advisor

Jennifer Lu

Partner

Why subsidies matter for SMEs

SMEs are the backbone of many economies, and in Hong Kong, they constitute a significant proportion of the business landscape. Government subsidies and incentives offer SMEs the much-needed financial support to address their operational costs, invest in technology, and expand their market presence.

Additionally, these programs serve as a risk-sharing mechanism, empowering smaller businesses to innovate and compete with larger players on a more level playing field. For entrepreneurs and startups, such initiatives can also open doors to collaboration, mentorship, and access to critical infrastructure.

Incentives for family offices

Under the new scheme, a single-family office can be exempted from licensing under the Securities and Futures Ordinance (SFO) if it does not conduct business in Hong Kong; or perform any regulated activities.

The regulated activities include:

• Dealing in securities;
• Dealing in futures contracts;
• Leveraged foreign exchange trading;
• Advising on securities;
• Advising on futures contracts;
• Advising on corporate finance;
• Providing automated trading services;
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• Securities margin financing;
• Asset management;
• Providing credit rating services.

The specifics of it will need to be determined by reference to the facts of each case, including:

• The person is performing an occupation or a duty that requires attention; the activity involves continuity;
• The activity is capable of making a profit; and
• The activity was carried out to make a profit.

However, two carve-outs could exempt a family office from licensing for asset management under the SFO, where the first applies to services provided exclusively to the office’s group company regarding the group’s assets, and the second pertains to activities connected to the trust service of a registered entity under the Trust Ordinance.

Below are the new measures designed to attract family offices to Hong Kong.

Funding schemes for marketing and business development

BUD Fund and Tax Exemptions

The Hong Kong government's “Dedicated Fund on Branding, Upgrading, and Domestic Sales” (BUD Fund) assists Hong Kong-based companies in capitalizing on opportunities in Mainland China and, since 2018, in the 10 ASEAN countries. Its reach further extended between 2021 and 2023 to encompass 37 economies, including those with Investment Promotion and Protection Agreements (IPPAs) or Free Trade Agreements (FTAs) with Hong Kong. 

While the BUD Fund provides substantial financial support to eligible companies, understanding the tax implications of receiving such grants is crucial. In Hong Kong, the tax treatment of government grants like those from the BUD Fund can vary based on the nature and purpose of the funding. Generally, grants received for capital expenditures may not be taxable, whereas those intended to cover operational costs could be considered taxable income.

The BUD Fund introduced “Easy BUD,” a simplified online application process for SMEs, reducing the application duration to approximately 30 days. This scheme offers matching funding, covering up to 50 percent of project costs with a cap of HK$100,000 (US$13,900) per application and a cumulative limit of HK$7 million (US$978,000) per company. Eligibility is limited to private companies registered under Hong Kong's Business Registration Ordinance and actively operating in the region. The BUD Fund also provides support in business matchmaking, location analysis, market entry strategy, market research, and supply chain re-engineering in Asia.

Eligible projects under Easy BUD fall into the following broad categories:

• Design and production of promotional materials;
• Advertising;
• Participating in exhibitions and related expenditures;
• Establishing and optimizing company web pages;
• Mobile application for promotional purposes;
• Testing and certification services; and,
• Applying for product patent, trademark registration, or copyright protection.

SME Export Marketing Fund

Like the BUD Fund, the SME Export Marketing Fund (EMF) is a Hong Kong government initiative designed to support Hong Kong-based SMEs in expanding into international markets. The EMF aids companies in conducting "export promotion activities," encompassing participation in:

• Exhibitions both within Hong Kong and abroad;
• Executing business missions;
• Engaging in diverse advertising and promotional endeavors; and, 
• Creating or enhancing websites and mobile applications. 

Notably, these activities are primarily aimed at foreign markets. However, from April 30, 2021, to June 30, 2026, the scope has broadened to include major exhibitions targeting the Hong Kong local market, with eligibility extended to some larger enterprises.

Under the EMF, companies can receive a 50 percent reimbursement on approved expenses for these activities, capped at HK$100,000 (US$13,900) per application. The maximum funding available to each company is HK$1 million (US$128,031). Specifically for projects involving website or mobile application development or upgrades, the funding is limited to 50 percent of the total expenditure.

A comprehensive list of eligible local-focused events and activities is available for reference.

Tax Implications and Exemptions

Companies receiving grants from the BUD Fund should be aware of the potential tax obligations. It's essential to determine whether the grant should be treated as taxable income or if it qualifies for a tax exemption under Hong Kong tax laws. Consulting with a tax professional can provide clarity on whether the funds received need to be reported as income and how they should be accounted for in financial statements.

Understanding the tax status of BUD Fund grants can significantly impact a company's financial planning and net benefit from the funding. Proper tax planning ensures compliance with regulations and maximizes the advantages offered by the BUD Fund.

SME Financing Guarantee Scheme

The SME Financing Guarantee Scheme is a critical tool for small and medium enterprises (SMEs) facing liquidity challenges. Its purpose is to provide loan guarantees that enable businesses to access credit under favorable terms. Key features include:

• The scheme offers 80 percent to 90 percent guarantees on loans, lowering the risk for lending institutions and facilitating easier credit access for SMEs.
• Businesses submit applications through participating financial institutions, with streamlined procedures designed to expedite approvals.
• Open to locally registered SMEs with a defined track record and reasonable financial standing.

Recently, the application period for the scheme's 80 percent and 90 percent Guarantee Products was extended to March 2026, with an additional HK$10 billion allocated to the existing fund, reflecting the government’s commitment to alleviating financial stress on SMEs.

The permitted use of the facility, funding periods, amounts, and repayment terms of the various guaranteed products are listed below.

Innovation and technology fund

Hong Kong’s Innovation and Technology Fund (ITF) is a government funding scheme under the Innovation and Technology Commission (ITC) that provides funding for companies for a wide range of activities related to technology and R&D.

There are a wide range of funding programs under the ITF,  broadly aimed at:

• Supporting R&D;
• Facilitating technology adoption;
• Nurturing technology talent;
• Supporting technology startups; and
• Fostering an innovation and technology (I&T) culture.

Government funding schemes to support R&D

The ITF provides a range of funding programs aimed at encouraging local research and development (R&D). Below we have listed a sample of the R&D funding programs available (excluding university-exclusive programs).

Government funding schemes for technology adoption

The technology adoption funding schemes aim to promote the adoption of technology by local companies and the public sector.

The Technology Voucher Program (TVP) is particularly popular due to its broad scope of eligibility and is particularly helpful for SMEs, who can use the funds to upgrade or launch new IT systems, for instance.

Government funding schemes to nurture technology talent

The ITF funding programs for nurturing technology talent seek to assist local talent in gaining useful experience and help companies recruit and train technology employees. The programs include:

Government funding schemes for startups

Various Innovation and Technology Fund (ITF) programs offer direct financial support to local startups. These programs include a co-investment scheme designed to draw venture capital (VC) investment towards local startups and a university-based funding initiative aimed at assisting students and faculty in launching new businesses.

It's important to note that the Innovation and Technology Venture Fund (ITVF) specifically targets local startups and involves cooperation with select VC funds.

Fostering I&T culture

The final category of the ITF programs provides funding to support non-R&D projects that still contribute to Hong Kong’s overall I&T industry and culture.

The funds include a sponsorship scheme to support non-profits and companies in Hong Kong to engage in various activities related to I&T education and culture, as well as funding support for first-time patent applicants.

SME Financing Guarantee Scheme

The SME Financing Guarantee Scheme, administered by the Hong Kong Mortgage Corporation Limited Insurance Limited (HKMCI), a subsidiary of the Hong Kong Mortgage Corporation Limited (HKMC), facilitates SMEs and non-listed companies in obtaining financing from approved lenders for business purposes. HKMCI offers guaranteed coverage ranging from 50 percent to 100 percent for eligible companies' credit facilities. 

Initially, the scheme offered guarantees of 50 percent, 60 percent, and 70 percent, but later expanded to include 80 percent, 90 percent, and 100 percent guarantee products, which were extended until March 2024 in Hong Kong's 2023-2024 Budget. Post-March 2024, the 50/60/70 percent guarantee products will remain available. 

Eligible entities must be:

• Registered and operational in Hong Kong, 
• Not engaged in lending or related businesses, 
• Not affiliated with the lender, and not be a listed corporation. 

The permitted use of the facility, funding periods, amounts, and repayment terms of the various guarantee products are listed below.

Green Industry Support in Hong Kong

• The government is strategically adjusting its First Registration Tax (FRT) Concessions for electric vehicles (EVs), a program originally launched in 2018 to accelerate the transition from combustion engine vehicles to electric alternatives. Key modifications include:
• Extension of the Concession Scheme will continue for two more years, now running until March 2026, and the concession amounts will be reduced by 40 percent to reflect market changes.
• Revised concession caps:

• Private car FRT concession reduced from HK$97,500 to HK$58,500
• "One-for-One Replacement" scheme concession reduced from HK$287,500 to HK$172,500
• Vehicles priced over HK$500,000 will no longer qualify
• Full tax waiver remains for other EV types like commercial vehicles and motorcycles

• Green and Sustainable Finance Grant Scheme aims to support industries in their decarbonization journeys and is extended until 2027. The coverage for this budget expanded to cover transition bonds and loans
• Financial Services and Treasury Bureau and Securities & Futures Commission will develop a comprehensive roadmap for Sustainability Reporting Framework. Enterprises will be required to align sustainability disclosures with international standards
• Green and Sustainable Fintech Proof-of-Concept Subsidy Scheme provides funding for early-stage green fintech initiatives, and facilitates commercialization of innovative green technologies
• The Marine Department is also contributing to environmental sustainability through decarbonization incentives to reward Hong Kong-registered ships for achieving high international decarbonization ratings.
• A feasibility study is underway for providing green-methanol bunkering with the action plan expected to be published this year

Recent developments in Government Policy

The 2024-25 Budget introduces expanded incentives and tax policies to support small and medium-sized enterprises (SMEs), focusing on easing operational costs and fostering growth. Key measures include enhanced tax deductions for reinstating leased premises and streamlined allowances for industrial and commercial buildings, effective from the 2024-25 assessment year.

In addition, funding schemes like the SME Financing Guarantee Scheme have been extended until March 2026, with an increased commitment of HK$10 billion (US$1.28 billion) to facilitate business financing. SMEs in the food and beverage and retail sectors can also access subsidies for digital solutions through the Digital Transformation Support Pilot Programme.

The Dedicated Fund on Branding, Upgrading, and Domestic Sales (BUD Fund) has been expanded to include all countries with free trade or investment agreements with Hong Kong. A HK$500 million (US$63.86 million) boost will help SMEs enhance competitiveness locally and internationally, particularly in e-commerce through the “E-commerce Easy” initiative. These initiatives reflect the government’s commitment to fostering SME resilience and growth.

Tax incentives

Hong Kong's tax landscape is characterized by a generally low-tax environment with specific incentives tailored to different sectors. While the region does not provide extensive tax incentives for all companies, it benefits critical industries such as aviation services, financial services, and the shipping sector. Offshore funds that meet specific criteria can also be exempt from profits tax.

Hong Kong has implemented a two-tier tax profits tax system, where the first HK$2 million (US$255,000) of assessable profits for qualified enterprises is taxed at a reduced rate of 8.25 percent rather than the standard 16.5 percent. This system aims to ease the tax burden on smaller businesses.