Introduction
As a member of the international tax reform framework of a two-pillar solution announced by the Organisation for Economic Co-operation and Development (OECD) to tackle base erosion and profit shifting risks arising from the digitalisation of the economy (commonly known as BEPS 2.0)， the Hong Kong government gazetted a draft bill - Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024- on 27 December 2024.
Please note that the bill is still subject to Legislative Council scrutiny but will be effective retrospectively from 1 January 2025 upon enactment.
The purpose of this newsletter is to highlight 3 areas within the draft bill’'s framework for our clients’ reference:-
I.Proposed targeted enterprises
II.Proposed implementation flow
III.Proposed timelines for tax administration
Draft bill’'s framework
I.Proposed targeted enterprises
Any Hong Kong resident entity (see Note below) under a multinational enterprise group with annual consolidated revenue of EUR750 million or above in at least 2 of the 4 fiscal years immediately preceding the current fiscal year will be within scope of the legislation (「collectively referred to as 「in-scope MNE groups」).
Note:
Any Hong Kong resident entity means an entity–
i.incorporated in Hong Kong; or
ii.incorporated outside Hong Kong but normally managed / controlled in Hong Kong
Entities engaged in investment fund or predominantly in real estate are excluded.
II.Proposed implementation flow
| Stage | Implementation | Details |
|---|---|---|
| 1 | Meet Global minimum tax requirement |
In-scope MNE groups shall pay a minimum tax at effective tax rate (“ETR”) of 15% in every jurisdiction they operate. In case this requirement is not met，go to Stage 2. |
| 2 | Pay Hong Kong minimum top-up tax |
The Hong Kong tax authority imposes a top-up tax on the Hong Kong resident entity (i.e. entities with an effective tax rate below 15%). In case this requirement is not met，go to Stage 3. |
| 3 | Income Inclusion Rule (IIR) |
Any Hong Kong resident entity without a top-up tax: a. the tax authority in the jurisdiction of the parent entity will impose a top-up tax in respect of these entities (with an effective tax rate below 15%) on the parent entity. In case this requirement is not met，go to Stage 4. |
| 4 | Undertaxed Profits Rule (UTPR) | To be confirmed (not to implement in 2025) |
III.Proposed timelines for tax administration
| Tax administration work | Timelines |
|---|---|
| 1. Filing of top-up tax notification | Within 6 months after the last day of the reporting fiscal year |
| 2. Filing of a top-up tax return | Not later than 15 months after the last day of the reporting fiscal year |
| 3. Tax due date |
1 month after – the expiry of the return filing deadline; OR the date of the notice of assessment, whichever is the later |
| 4. Objection | 2 months after the date of the notice of assessment |
Source From：【2024/12/27 PORTCULLIS NEWS】