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July 29, 2020
2020-6056

Hong Kong enacts new legislation providing tax incentives for insurance-related businesses

Hong Kong enacted the Inland Revenue (Amendment) (Profits Tax Concessions for Insurance-related Businesses) Bill 2019 (the New Law) on 24 July 2020.1 The New Law provides that the assessable profits in respect of sums received by or accrued to the following specified persons will be taxed at the concessionary tax rate of 8.25% (50% of the normal corporate tax rate of 16.5%):

  • Profits derived by a specified insurer2 from their general insurance business, other than profits derived from certain local-demand driven business.3
  • Profits derived from the general reinsurance business of a specified insurer.
  • Profits of a licensed insurance broker that relate to a contract of insurance effected by (a) a professional reinsurer; or (b) a specified insurer in the course of the insurer carrying on a business that is eligible for the concessionary tax rate under the New Law.

Anti-avoidance provision

The 8.25% concessionary tax rate will not be applicable if the main purpose or one of the main purposes, of the specified insurer in entering into the transaction or the series of transactions is to avoid or postpone the liability to pay tax or reduce the amount of liability.

Substantial activities requirement

The activities which generate the profits eligible for the concessionary tax rate must be carried out in Hong Kong, or are arranged to be carried out in Hong Kong, by the taxpayers concerned.

Endnotes

  1. The New Law was gazetted and formally became law on this date.
  2. A specified insurer refers to an entity authorized to carry on an insurance business in Hong Kong under the Insurance Ordinance, other than a professional reinsurer or an authorized captive insurer.
  3. Health risk; mortgage guarantee risk; motor vehicle damage risk; employees' compensation liability; and owners' corporation third party liability.

____________________________________________________

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong

David Chan | david.chan@hk.ey.com

Paul Ho, Financial Services | paul.ho@hk.ey.com

Ernst & Young LLP, Hong Kong Tax Desk, New York

Rex Lo | rex.lo1@ey.com

Ernst & Young LLP, Asia Pacific Business Group, New York

Chris Finnerty | chris.finnerty1@ey.com

Bee-Khun Yap | bee-khun.yap@ey.com

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