The Inland Revenue (Amendment) (No. 3) Ordinance 2018 (the Ordinance) was gazetted on March 29 to implement the two-tiered profits tax rates regime announced in the 2017 Policy Address.
Under the new two-tiered profits tax rates regime which will apply to both corporations and unincorporated businesses, the applicable profits tax rates will be as follows:- The two-tiered profits tax rates regime will be applicable to any year of assessment commencing on or after April 1, 2018. The profits tax rate for the first $2 million of profits of corporations will be lowered to 8.25 per cent. Profits above that amount will continue to be subject to the tax rate of 16.5 per cent. For unincorporated businesses (i.e. partnerships and sole proprietorships), the two-tiered tax rates will correspondingly be set at 7.5 per cent and 15 per cent. A tax-paying corporation or unincorporated business may save up to $165,000 and $150,000 each year respectively. The two-tiered profits tax rates regime will benefit eligible enterprises with assessable profits, irrespective of their size. To ensure that the tax benefits will target small and medium enterprises (SMEs), the application of the two-tiered rates is restricted to only one enterprise nominated among connected entities.
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