The Intellectual Property Department of Hong Kong, China, releases preferential tax exemption policy for "Patent Box"

On July 5, 2024, the Intellectual Property Department of Hong Kong announced the "Patent Box" tax exemption policy, which will significantly reduce the tax rate on profits earned by eligible intellectual property holders (i.e. patents, software copyrights and plant variety rights) in 2023/24 from 16.5% to 5%.

The condition for enjoying this tax incentive policy is that the relevant innovation is registered with the Hong Kong Intellectual Property Department for intellectual property rights, including patents, new plant varieties, and computer software copyrights. If the intellectual property holder completes the innovation through self-development, the enterprise can enjoy a 5% tax rate on the related profits; if the intellectual property holder is involved in acquisitions or transactions, or the innovative research and development activities are carried out outside Hong Kong, the tax incentive can be enjoyed in proportion.

Qualified innovation income includes innovation income from the monetization of intellectual property, or income from the use or implementation of intellectual property, such as:

• Royalties from licensing intellectual property to others;
• Income from the sale of intellectual property;
• Income from sales or services;
• Compensation for infringement of intellectual property rights

If the IP is filed after July 5, 2026, the following corresponding applications must be filed in Hong Kong for the same invention or plant variety to enjoy the “Patent Box” tax incentives:

• Original granted standard patents filed under the Patents Ordinance of Hong Kong;
• Applications submitted under the Hong Kong Plant Varieties Protection Ordinance.

This measure is an incentive measure of the Hong Kong Government to promote the creation, protection, management and utilization of intellectual property, and support innovation and technological development, so as to encourage enterprises to invest more in R&D activities, protect intellectual property and actively promote the commercialization of intellectual property.