What Changed
- Tax deductions allowed for capital expenditure incurred when purchasing eligible IP rights from intra-group associates.
- Proportional tax deductions permitted for IP rights used outside Hong Kong if licensing income is taxable under Hong Kong's foreign-sourced income exemption regime.
- Tax deductions extended to upfront licence fees, subject to safeguard measures such as main purpose tests and mandatory third-party valuation reports above specified thresholds.
Multinational enterprises, technology firms, and businesses engaging in intellectual property (IP) transactions in Hong Kong face updated tax deduction proposals. On October 16, 2026, the Hong Kong Government published in the Gazette the Inland Revenue (Amendment) (Tax Deductions for Intellectual Property Expenditure) Bill 2026. The draft legislation aims to relax tax deduction arrangements for relevant capital expenditure incurred by enterprises purchasing eligible IP rights or acquiring licenses to use IP rights, putting into effect measures announced in the 2025-26 and 2026-27 Budgets.
The Bill proposes three principal relaxations for IP-related tax deductions:
1. Purchases from Associates: Allowing tax deductions for capital expenditure incurred when purchasing eligible IP rights from associates, such as group affiliates. This measure aims to encourage multinational enterprises to centralise IP management in Hong Kong and facilitate intra-group transfers.
2. IP Used Outside Hong Kong: Permitting proportional tax deductions for purchasing eligible IP rights used by a licensee outside Hong Kong, provided the associated licensing income is regarded as arising in or derived from Hong Kong under the foreign-sourced income exemption (FSIE) regime and is subject to Hong Kong profits tax.
3. Upfront Licence Fees: Permitting tax deductions for upfront licence fees incurred by enterprises for using eligible IP rights in a licensing arrangement to support IP commercialisation.
To safeguard Hong Kong's tax base and prevent abuse, the Bill introduces statutory safeguards. These include a main purpose test for IP purchases from associates, specific calculation rules for Hong Kong associates, and a requirement for a third-party independent valuation report when capital expenditure for purchasing IP rights from non-Hong Kong associates or acquiring a licence from associates exceeds a specified threshold.
The proposed amendments will apply to contracts entered into on or after April 1, 2026. The Bill will be introduced into the Legislative Council for First Reading and Second Reading on October 28, 2026. According to the Commerce and Economic Development Bureau, the initiative complements Hong Kong's "patent box" tax regime and supports Hong Kong's development into an international innovation and technology centre and regional IP trading hub under China's National 15th Five-Year Plan.
Who May Be Affected
Enterprises, multinational corporations, and businesses engaged in IP purchasing, licensing, transfer, or central management in Hong Kong.
Cross-Border Context
Facilitates multinational corporate restructuring, cross-border technology transfer, foreign-sourced income exemption compliance, and alignment with China's National 15th Five-Year Plan.
What to check next
- Track the First Reading and Second Reading of the Bill in the Legislative Council on October 28, 2026.
- Review the specific monetary thresholds for independent valuation reports once the full legislative text is examined.
This article provides general information and does not constitute legal advice. Consult the official text and obtain advice appropriate to your circumstances where needed.