Hong Kong legal update: New Hong Kong Budget Increases Major Funding For Businesses

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Hot Topic: The Hong Kong Special Administration Region’s Financial Secretary has produced a budget aimed at dealing with the Coronavirus

Background

The Hong Kong government have released their budget for 2020-2021 along with a string of measures to inject the Special Administrative Region with a large economic stimulus that they hope will balance out the disruption to businesses damaged by the COVID-19 virus that is spreading across the globe.

The budget is estimated to consist of roughly 120 billion Hong Kong dollars’ worth of measures and follows four previous rounds of relief measures totalling HK$30 billion and an additional HK$30billion that has gone into an ‘Anti-Epidemic Fund’. This comes after Hong Kong reported that they had entered into a recession at the end of 2019 with the measures being used, as the Government Finance Chief stated, “to support enterprises, safeguard jobs, stimulate the economy and relieve people’s burdens”.

A crucial measure for individuals that is worth mentioning, is that every single permanent resident of Hong Kong is to receive HK$10,000, as part of a huge cash pay-out. This HK$71 billion package is hoped to stimulate the economy and increase usable spending for goods and services.

By extracting from the regions large monetary reserve, the Government is attempting to tackle the outbreak and its damaging effect to businesses as well as supporting healthcare measures. These measures are expected to create a governmental fiscal deficit of $139.1 billion for the next year, accounting for 4.8 per cent of Hong Kong’s GDP.

Whilst the budget itself has been revealed, with many measures being put forward, the details of those measures have not yet been released. After the legislature has passed the budget, secondary legislative amendments will implement the proposed measures, thereby releasing more details. Asiallians will explain these details when such legislation becomes available.

Loan concession

One of the major benefits for enterprises under this budget is a loan concession under the Financial Guarantee Scheme. This low-interest loan from the Government will act as a 100% guarantee for third-party loans and will be subject to a cap of HK$2 million. The loan will be based on individual factors such as salary and rental expenditure for 6 months and repayment periods will extend for 3 years.

Furthermore, an optional principle moratorium – a period of time during the 3-year loan where the borrower is not required to make any repayment – will operate for the first 6 months, where only interest payments will have to be made.

This guarantee scheme, backed by a reserve of HK$20 billion, is hoped to rejuvenate investment on a large scale, ensuring that smaller businesses and start-ups are able to get the financial liquidity to begin trading.

Profits Tax

Another crucial aspect of this budget is the effect to the profits tax. Ordinarily this tax has two options, a single tier corporate system or a two-tier profits tax system, both of which can range from 7% to 16.5% of all of a company’s profits made in Hong Kong.

However, under the new budget, all profit tax for the year of assessment of 2019-2020 has been reduced to 0%. This effectively means that for the previous tax year, there will be no profit tax collected, up to a maximum cap of HK$20,000. This measure is reported to affect over 140,000 firms and has been a costly step for the Government, requiring a HK$2 billion reduction in revenue. It will be claimed through tax rebates that will require firms to claim whilst applying for their tax deductions.

Properties

All rates – a tax on the occupation of property which are charged a percentage of the rateable value of the property – for non-domestic properties have been waived and removed with the measure being broken into quarters for the coming year. There is a ceiling for each property of HK$5000 per quarter for each of the first two quarters, and then a ceiling of $1,500 per quarter for the last two quarters.

This measure is supposed to benefit 420,000 properties and will reduce the government revenue by roughly HK$3.2 billion.

In addition, there are rental reductions of 50% for another 6 months for tenants of governmental properties, government land, and industrial areas such as the EcoPark. There is also a similar measure of 50% reduction for rental and fees for operators of properties of short-term waivers.

Furthermore, this measure is backed by subsidies to eligible non-domestic properties to cover 75% of their monthly billed electricity charges, subject to a monthly cap of HK$5000 per accounts. This is similarly seen with water and sewage subsidies that see 75% of the charges being payable by the government for 4 months, subject to monthly caps of HK$20,000 (for water) and HK$12,500 (for sewage). Again, details on what constitutes a property as being eligible, have not yet been released.

Business Registration

Registration fees for new businesses have also been completely waived for the upcoming financial year of 2020-21 which will have wide ranging benefits for roughly 1.5 million business operators and help firms retain a certain amount of cash liquidity.

Moreover, registration fees for annual returns, charged by the companies register, will also be waived for two years, benefitting 1.4 million companies and reducing related revenue by around 212 million. However, as a cautionary note, this will not include late delivery charges.

Other measures

A variety of different measures have also been put forward. These include major aid packages to certain industries that have been most heavily affected by the COVID-19 virus such as tourism agencies and restaurants.

There are also various measures in respect of employee support which, in some cases, will benefit employers in the long term. For example, employment programmes within the Labour department will set aside HK$30 million to encourage businesses to hire elderly, young and those with disabilities whilst also greatly increasing the ceiling for training allowances and placement schemes. However, this policy will not be in effect until the second half of the year.

Sources Special

Special Act on COVID-19 Prevention, Relief and Restoration available at
•  https://law.moj.gov.tw/News/NewsDetail.aspx?msgid=153844

Special Act on COVID-19 Prevention, Relief and Restoration available at
•  http://www.taipeitimes.com/News/front/
archives/2020/02/21/2003731360
• http://www.taipeitimes.com/News/
taiwan/archives/2020/02/26/2003731638/1

Governmental Reports on the new budget
•  https://english.ey.gov.tw/Page/61BF20C3E89B856/
06d49065-d457-41ae-aae1-8a4d3450abcd
• https://english.ey.gov.tw/Page/61BF20C3E89B856/
b9f428fc-820b-4034-a795-673b9f32204b

Feel free to contact asiallians@asiallians.com for more information.