Does Hong Kong offer a super deduction for R&D spending?
Yes. Qualifying expenditure on domestic R&D activities gets a 300% deduction on the first HK$2 million and 200% on the rest, with no overall cap on the enhanced deduction. What counts as qualifying is defined in detail in the Ordinance.
Since the 2018 amendments, businesses can claim an enhanced profits tax deduction for qualifying R&D:
- 300% deduction on the first HK$2 million of qualifying expenditure.
- 200% on the remainder, with no cap on the enhanced amount.
Two kinds of R&D expenditure. Schedule 45 of the Ordinance, as explained in the IRD's practice note, splits qualifying R&D expenditure into:
- Type A: qualifies only for the ordinary 100% deduction.
- Type B: qualifies for the enhanced two-tiered deduction.
Which costs fall into which type (for example, staff costs, consumables, or payments to designated local research institutions) is defined in the Schedule, so check the practice note before classifying your spending.
For example, HK$3 million of Type B spend would generally give a deduction of HK$6 million on the first HK$2 million (300%) plus HK$2 million on the next HK$1 million (200%), totalling HK$8 million before other adjustments.
Points to consider
- The R&D must meet the definition and conditions set out in the Ordinance; the IRD's practice note has detailed examples.
- The enhanced rate is aimed at qualifying domestic R&D, and records of how the expenditure was incurred are important.
- Always read the current practice note before claiming; it is a specialised claim.
The deduction reduces taxable profits, so it saves tax at 8.25% or 16.5% (or the unincorporated rates).
Legal basis
- Inland Revenue Ordinance (Cap. 112), s.16B and Schedule 45
Sources
Applies to YA 2025/26 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- Does Hong Kong have VAT, GST or sales tax?No. Hong Kong has no value-added tax, goods and services tax or sales tax. The only taxes on income are profits tax, salaries tax and property tax, plus duties such as stamp duty. The government also confirms there is no capital gains tax and no withholding tax on dividends or interest.
- What is the profits tax rate for a Hong Kong company?Under the two-tiered system, a corporation pays 8.25% on its first HK$2 million of assessable profits and 16.5% on the rest. The lower rate is available to only one entity in a group of connected entities. This applies from year of assessment 2018/19 onwards.
- What profits tax rate do sole proprietors and partnerships pay in Hong Kong?Unincorporated businesses pay 7.5% on the first HK$2 million of assessable profits and 15% on the remainder, from year of assessment 2018/19. This is the two-tiered system. As with companies, only one entity in a group of connected entities can use the lower rate.
- How does provisional profits tax work in Hong Kong?Provisional profits tax is an advance payment charged for a year of assessment, calculated from the previous year's assessed profits. It is then offset against the final tax for that year, with any excess applied to the next year's provisional tax or refunded. It is paid in instalments set out on the demand note.
- How can I hold over (reduce) my provisional profits tax?You can apply in writing to pay less or none of your provisional profits tax on prescribed grounds, most commonly if profits for the year are likely to be below 90% of the base figure. Apply at least 28 days before the due date or within 14 days after the demand note is issued, whichever is later.