Hong Kong Inland Revenue Eyes Macau Corporate Tax Breaks

by Mary Swire, for LawAndTax-News.com, Hong Kong

24 June 2004

Reports in the Hong Kong media have suggested that the number of companies which have shifted their business from the territory to Macau in order to take advantage of the latter's tax regime has attracted the attention of the Hong Kong Inland Revenue Department (IRD), despite the recent suggestion by Secretary for Economic Development and Labour, Stephen Ip that the impact of Macau's Offshore Law on Hong Kong is "insignificant".

The region introduced the system of corporate tax breaks in 1999, offering a zero tax rate to overseas companies which belong to one of the 20 approved business categories, do not have their customer base or market in Macau, and do not have any dealings with local counterparties.

In addition to the income tax and stamp duty exemptions afforded to foreign companies by the tax regime, expatriate employees of eligible businesses are also exempt from salaries tax payments for three years.

According to the South China Morning Post, although interest in the scheme was muted to begin with, more than 300 companies have now taken advantage of the incentives, the majority of which are from Hong Kong.

This has reportedly raised eyebrows, and the IRD recently revealed that it is "monitoring the situation closely with a view to detecting and stamping out unacceptable tax avoidance schemes involving Macau offshore institutions".

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