In response to the major policy measure to promote the development and commercialization of intellectual property (IP) rights by the Hong Kong Government, the Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Ordinance 2024 has come into operation effective 5 July 2024.

• Starting from the 2023/24 year of assessment, taxpayers in Hong Kong can enjoy the concessionary tax rate of 5% for the qualifying profits derived from income arising from the eligible IP rights,  rather than the normal profit tax rate of 16.5%.

• There are three types of eligible IP rights, namely patents, plant variety rights and copyright subsisting in software. The first two types are subject to grant upon application and examination in or outside Hong Kong whereas no registration is required for copyright.

• Eligible IP must be generated from research and development activities entirely or proportionally by the taxpayer. The former can enjoy full concessionary tax rate whereas the latter can enjoy a certain portion of it. 

• Income derived from the commercialization or exploitation of eligible IP rights in or outside Hong Kong including but not limited to:

1. royalties from use of an eligible IP by a licensee;
2. income from sale of an eligible IP;
3. the portion of income from sale of a product or a service which is attributable to an eligible IP; or 
4. amount of insurance, damages or compensation derived in relation to an eligible IP by a third party.

• 24-month grace period for non-Hong Kong eligible patents & plant variety rights will end on 4 July 2026. Thereafter a corresponding application for the same invention and plant variety under one of the following legislations must be filed in Hong Kong :

1. an original grant patent ("OGP) or a short-term patent following a request for post-grant substantive examination under the Patents Ordinance, Cap.514; or
2. a plant variety right application under the Plant Varieties Protection Ordinance, Cap 490.

This is a brief outline of the "patent box" tax incentive. Full professional advice should be sought on any specific filing strategies for patent protection with effective leverage on the tax inventive in Hong Kong. 

Download Tax Incentive for Eligible IP Rights .pdf