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Shenzhen and Hong Kong Join Hands to Build Global Sci-tech Innovation Hub in GBA
China’s State Council has recently released the Development Plan for Shenzhen Park of Hetao Shenzhen–Hong Kong Science and Technology Innovation Cooperation Zone (“Cooperation Zone”). The announcement brings forth new opportunities for cooperation in the Guangdong–Hong Kong–Macao Greater Bay Area (“GBA”). The Cooperation Zone marks the fourth initiative of its kind in the mega city cluster. It is, however, the first to focus exclusively on nurturing sci-tech innovation.
Straddling the Shenzhen–Hong Kong boundary, the Cooperation Zone is poised to assume a pivotal role in fostering collaborative innovation and bolstering the development of a global sci-tech innovation hub in the GBA. It comprises a 3.02 square kilometre park on the Shenzhen side and a 0.87 square kilometre park on the Hong Kong side. The Futian Port and Huanggang Port will serve as vital gateways that connect the two parks.
According to the proposed plan, the Cooperation Zone will capitalise on the national city of innovation’s flourishing hi-tech industries and vibrant entrepreneurial ecosystem. In addition, it will give full play to Hong Kong’s advantageous free trade port policy and world-class professional services. By 2025, there will be a well-established and effective mechanism in place to facilitate cooperation in sci-tech innovation between Shenzhen and Hong Kong. Additionally, the Huanggang checkpoint will be rebuilt to streamline and expedite customs clearance procedures. The plan aims to establish a robust framework for collaborative innovation between the Shenzhen Park and the Hong Kong Park by 2035. The Cooperation Zone is set to become a state-of-the-art research hub conducive to the seamless flow of innovation factors within the GBA.
To date, the Cooperation Zone has attracted more than 3,000 international and local research talents. It also currently houses a quantum computing centre, a data exchange hub, and a BRICS-affiliated research institute.
China Raises Thresholds for Individual Income Tax Special Additional Deductions
China’s State Council has issued the Circular on Raising Certain Thresholds for Additional Deductions in Individual Income Tax. To alleviate the financial burden of family expenses related to childcare and elderly care, thresholds for three types of special additional deductions under China’s Individual Income Tax Law have been raised. The policy will apply retroactively from 1 January 2023.
The updated thresholds are as follows:
– The threshold for special additional deductions in respect of expenses incurred in caring for infants and young children under the age of three will increase from RMB 1,000 to RMB 2,000 per child monthly.
– The threshold for special additional deductions in respect of educational expenses will be raised from RMB 1,000 to RMB 2,000 per child monthly.
– The threshold for special additional deductions in respect of elderly care will be raised from RMB 2,000 to RMB 3,000 monthly. Under this provision, an only child is entitled to a flat rate deduction of RMB 3,000 per month. On the other hand, taxpayers who are not an only child will share a monthly deduction quota of RMB 3,000 with their siblings, with each person’s share limited to a maximum of RMB 1,500 per month.
China Extends Personal Income Tax Incentives in GBA Until End of 2027
On 25 August, China’s Ministry of Finance released the Circular on Continuing the Preferential Personal Income Tax Policies in the GBA. The Circular extends concessionary personal income tax policies applicable in the GBA through 31 December 2027.
According to the Circular, non-local high-quality talents and talents in short supply, including those from Hong Kong and Macao, who are employed in the GBA, will be eligible for subsidies to offset the difference between personal income tax rates. These subsidies are not subject to personal income tax.
The identification of overseas high-quality talents and talents in short supply working in the GBA, as well as the provision of subsidies, shall be carried out in accordance with the relevant regulations of Guangdong Province and Shenzhen Municipality.
The Circular’s scope of application includes the nine cities in the Pearl River Delta of the GBA, including Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, and Zhaoqing in Guangdong Province.
Hong Kong Publishes New Fintech Promotion Roadmap
In collaboration with the Securities and Futures Commission of Hong Kong, the Insurance Authority, and other key stakeholders, the Hong Kong Monetary Authority (“HKMA”) has recently released A Bridge to the Future: Hong Kong Fintech Promotion Roadmap (“Roadmap”).
The Roadmap forms part of the HKMA’s ongoing endeavours to encourage the uptake of fintech by banks in Hong Kong under the “Fintech 2025” strategy. It sets out the key initiatives to be undertaken in the upcoming year to enhance the adoption of fintech in the financial services sector. The HKMA intends to broaden its promotion efforts beyond creating awareness. It will actively support financial institutions in implementing fintech solutions to give full play to the transformative power of fintech. To accelerate the expansion of the fintech ecosystem, the HKMA will take the lead in fostering increased collaboration within the financial services industry.
The Roadmap encompasses various fintech areas, namely wealthtech, insurtech, and greentech. In addition, it focuses on the adoption of artificial intelligence and distributed ledger technology. The range of planned initiatives include the following:
– Establishing a dedicated Fintech Knowledge Hub to provide better access to information and resources for different stakeholders in the fintech ecosystem. The centralised hub will serve as a cross-sectoral platform for Fintech solution providers, financial institutions, and other bodies to tackle sourcing challenges.
– Increasing the frequency of fintech showcase events and roundtables to promote knowledge exchange among financial institutions and fintech service providers.
– Holding webinars and in-person seminars to provide a collaborative platform for stakeholders to exchange insights on the latest Fintech trends and solutions.
– Releasing a collection of experience-sharing videos showcasing companies that have made progress in the fintech focus areas.
Latest Updates on Amendments to Foreign-Sourced Income Exemption Regime for Disposal Gains
The proposed amendments to the Foreign-Sourced Income Exemption (“FSIE”) regime for disposal gains sourced from abroad have undergone some revisions following negotiations between the Hong Kong Special Administrative Region (“SAR”) Government and the EU.
The new amendment bill is currently being drafted. The anticipated date for the introduction of the amendment bill into the Legislative Council is set for October 2023. Once the amendment bill is officially passed, the proposed amendments will come into force on 1 January 2024.
The revisions to the proposed amendments to the FSIE regime for disposal gains are as follows.
– Scope of assets: The proposal put forth by the Hong Kong SAR Government has been turned down by the EU. Instead, the EU has emphasised the need for the inclusion of a non-exhaustive list that includes all disposal gains, whether they be financial or non-financial in nature.
– Calculation of disposal gains or losses: The EU has also rejected certain proposals regarding the calculation of disposal gains or losses. These include the method of rebasing, the provision of taper relief, and a lower tax rate for pre-commencement gains. According to the EU, any proposal that allows for a reduction in tax liabilities without the requirement to adhere to the economic substance requirement goes against the intended objectives of the FSIE reform.
– Other exemption and relief: Intra-group relief will be permitted subject to certain conditions. If a company transfers an asset to an associated company, the tax on any gains from the disposal of the asset can be deferred. To determine if the companies are related, a 75 per cent equity interest ownership threshold will be applied. In addition, the carve-out for disposal gains of traders will be allowed, provided that specific conditions are met.
China Introduces Measures to Boost Fiscal Support for Foreign Investors
The Chinese government has recently released the Guidelines on Further Optimising Business Environment and Attracting More Foreign Investment (“Guidelines”). Encompassing six aspects and containing 24 measures, the Guidelines emphasise the importance of ensuring a level-playing field for foreign-invested enterprises. Domestic and foreign-invested enterprises should be on equal footing, and the latter should be able to enjoy equal treatment in accordance with the law. In addition, the document highlights the need to increase the provision of fiscal support for foreign-invested entities.
According to the Guidelines, to incentivise foreign-invested enterprises to reinvest their profits in China, a temporary exemption on withholding tax will apply to profits accrued to foreign investors in the country. In addition, commerce and tax departments at different levels will be instructed to revise the applicable scope of policies and optimise application handling procedures to ensure that favourable tax policies for foreign enterprises are effectively implemented. Consultations will be offered to assist foreigners living in China in applying for tax exemptions on their allowances and subsidies, including housing subsidies, language training fees, and children’s education fees.
On a separate front, foreign-invested R&D centres will be offered guidance on how to leverage preferential import tax policies. Additionally, they can benefit from VAT rebate policies when procuring domestically produced equipment. These measures aim to encourage and facilitate the growth of R&D activities, thereby promoting innovation and development in the scientific and technological sectors.
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