Effective from 19 March 2021, the Inland Revenue (Amendment) (Profits Tax Concessions for Insurance-related Businesses) Ordinance 2020 aims to extend the concessionary profits tax rate of 8.25% to the following insurance-related businesses:
- 1all general reinsurance business of a direct insurer;
- 2certain types of general insurance business of a specified insurer; and
- 3certain types of insurance brokerage business of licensed insurance broker companies.
The new bill is going to extend the tax benefits to a significant portion of the insurance-related business corporations in Hong Kong. Having said that, the following five types of risk and liabilities are excluded from the tax concessions:
- 1Health Risk
- 2Mortgage Guarantee Risk
- 3Motor Vehicle Damage Risk
- 4Employees Compensation Liability
- 5Owners’ corporation third party liability
In order to qualify for the concessionary regime, the taxpayers must meet the below substantial activity threshold requirements:
Enter your text here... | Minimum | |
No. of full-time qualified employees in Hong Kong | Operating expenditure incurred in Hong Kong | |
Specified insurer - Mutual Insurance corporation | 4 | HK$2 million |
Specified insurer - Non-Mutual Insurance corporation | 7 | HK$4 million |
Insurance brokerage company | 3 | HK$1 million |
Points to note
We welcome the New Bill as it is going to enhance the competitiveness of Hong Kong Insurance Business. We expect more corporations to relocate their hubs from other low-tax jurisdictions to Hong Kong given the attractive tax rate.
Based on our observations, most of the corporations maintained sufficient number of personnels and incurred adequate amount of operating expenses. The only question is that insurance agents are generally self-employed rather than employed as a full-time in practice in Hong Kong. Turning the insurance agents into full-time employees may significantly increase the tax liability of these “employees”. As such, it depends on whether the IRD would apply strict rules on the Minimum Employee Requirement.
The only question left is whether the insurance products offered fall within the above excluded lists. While five types of products are specifically excluded, we consider that quite a number of insurance products in the market may still qualify for the tax concession. We would be pleased to assist you to examine whether any of your current income is eligible for the 8.25% tax rate.
