By Clare Chang, Managing Director, Greater China
On 30 October 2024, the Hong Kong Government released the outcome of its consultation with various stakeholders on implementing the global minimum tax and the Hong Kong Minimum Top-up Tax (HKMTT). Here’s what you need to know.
The consultation period took place between December 2023 and March 2024. In response to stakeholders’ feedback, the Government is following up with some changes to its tax administration regime. Hong Kong’s aim with this move is to align with international tax standards, particularly the global minimum tax initiative pushed by the Organisation for Economic Co-operation and Development (OECD), while also addressing local needs.
What’s changing: a closer look
1. Global minimum tax rolls out in 2025
- Hong Kong will introduce two new tax rules starting in 2025: the Income Inclusion Rule (IIR) and the HKMTT. These changes are part of a broader global initiative to ensure large multinational companies contribute a minimum level of tax no matter where they do business
- However, another component, the Undertaxed Profits Rule (UTPR), won’t be coming into effect just yet. The government has decided to hold off on implementing the UTPR for now, which gives Hong Kong a chance to observe how other countries are handling it and to make sure the rule won’t end up putting local companies at a disadvantage
2. Folding the new rules into the existing tax law
- Rather than creating a completely separate ordinance, the government is incorporating these new rules into Hong Kong’s Inland Revenue Ordinance (IRO). This addition will sit under a separate section, so it remains distinct from regular profits tax rules, which should help with administration, especially for cross-border tax issues
3. New definition of “Hong Kong resident entity”
- To clear up any ambiguity about which entities qualify as Hong Kong tax residents, a new definition for “Hong Kong resident entity” is coming into effect retroactively from 1 January 2024. This change aligns Hong Kong’s tax rules with OECD standards, benefiting multinational companies
Key exemptions and temporary relief measures
Hong Kong wants to remain competitive, so it has carved out some specific exemptions to protect certain sectors, especially in finance.
1. Investment and insurance entities are exempt
- In a move to maintain Hong Kong’s financial hub status, investment funds and insurance businesses are exempt from the HKMTT. This prevents these enterprises from being penalised under the new tax regulations and is comparable to what Singapore and other jurisdictions are doing
2. A UTPR safe harbor until 2026
- For the transitional period up until 2026, the government is offering a safe harbour for UTPR compliance. This means that multinational groups headquartered in jurisdictions with a corporate tax rate of at least 20% (like the U.S.) won’t have to worry about certain UTPR obligations in Hong Kong for now. It’s a temporary break that should make it easier for companies to adjust
Making compliance easier: key administrative changes
To reduce the administrative burden of these changes, Hong Kong is adding several practical measures for flexibility and extended deadlines.
1. Flexibility for top-up tax payment
- Multinational groups will now have the flexibility to choose which of their entities will handle the top-up tax payment each year. On top of that, the government has extended the payment deadline to one month after either the assessment notice or the filing deadline—whichever comes later. This added time should make it easier for companies to manage their cash flow and avoid last-minute pressure
2. “Clean exit” for departing entities
- If an entity leaves a multinational group, Hong Kong is offering a “clean exit” option, meaning it won’t be liable for future top-up tax obligations of the group. This is particularly useful for businesses going through mergers, acquisitions or other restructuring activities
3. Extended timeframes for objections and assessments
- Responding to feedback from businesses, the government has extended the objection period to two months after receiving a tax assessment. Authorities also now have up to six years from the end of a fiscal year—or from when an under-assessment is discovered—to raise an assessment. This gives both the tax office and companies a more realistic timeline to manage issues if they come up
4. Targeted anti-avoidance rules
- For the HKMTT, the government is implementing a “main purpose” test in place of the current anti-avoidance rules. Without introducing needless layers of regulation to already compliant enterprises, this targeted approach aims to reduce tax avoidance directly related to the global minimum tax
Looking ahead
The Hong Kong Government aims to introduce a draft bill in early 2025. Until then, the Inland Revenue Department (IRD) will be issuing more guidance to clarify how these new rules will work day-to-day, including specifics on compliance. For multinational companies operating in Hong Kong, these changes will have a real impact—particularly when it comes to preparing 2024 financial reports. It’s a good idea to start getting up to speed on the new requirements, consider how they might affect your tax responsibilities, and make any adjustments now to stay prepared.
While these tax updates mark a big shift, they also show Hong Kong’s intention to stay competitive in a world with evolving tax rules.
How IQ-EQ can help
For specific advice or next steps, speak to IQ-EQ’s expert team in Hong Kong to make sure your business is fully prepared.
We offer a comprehensive suite of services for investment firms including tailored solutions to ensure compliance, optimise tax efficiency, minimise potential risks, and achieve competitive advantage. We have a global network with offices in 25 jurisdictions and use industry-leading technology to deliver efficiency as well as ESG compliance.
Visit our dedicated IQ-EQ Hong Kong website to find out more and get in touch today.
About the author
Clare is IQ-EQ’s Managing Director for Greater China, based in Hong Kong. She has extensive experience across the Asian funds industry and prior to joining IQ-EQ was responsible for fundraising activities and investor relations as Executive Director and Head of Capital Markets for special situation strategies at COS Capital, China Orient Asset Management’s real estate private equity fund manager.
