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Hong Kong: Subsidy payments, financial assistance grants exempt from tax (COVID-19)

Hong Kong: Subsidy payments exempt from tax

The Hong Kong government on 27 May 2020 released guidance—known in English as “The Exemption From Salaries Tax and Profits Tax (Anti-epidemic Fund) Order”—to exempt from tax most payments or grants of subsidies and financial assistance given to individual and business taxpayers and made in response to the coronavirus (COVID-19) pandemic.

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The tax exemptions would be effective from the year of assessment 2019/20.

The order has an effective date of 29 May 2020, and will be tabled at the Legislative Council for “negative vetting” on 3 June 2020.

Overview

Key points include:

  • Beneficiaries of the assistance granted will be exempt from profits tax and salaries tax unless “the sums are paid for general business activities and are not paid in a matching arrangement.” Most of the key supports for businesses (such as the employment support scheme) are covered by the tax exemption. A summary of the proposed tax treatment for the two rounds of measures under the anti-epidemic fund is shown below.
  • The same principles will be adopted to provide tax exemptions if and when further relief measures are rolled out under the anti-epidemic fund.
  • In respect of 2019/20 tax returns:
    • Employers and employees do not need to report the sums exempted in the tax returns.
    • Businesses or individuals who have already filed their tax returns can submit written notifications to the Hong Kong Inland Revenue Department (IRD) to amend the relevant information. Employers would need to file revised employer’s return(s) for the relevant employee(s), if applicable.

KPMG observation

The order confirms the tax treatment of the financial assistance granted under the anti-epidemic fund. The tax exemptions for most of the relief measures may help to alleviate the financial burden of industries, businesses and individuals affected by the COVID-19 pandemic. However, while tax remains an important consideration, businesses need to keep in mind other factors, such as long-term business plans, when assessing their eligibility for the relief measures. From a tax return filing perspective, businesses or individuals who have previously included the subsidies received under the anti-epidemic fund as taxable income (now confirmed to be tax exempt) in their tax returns need to consider amending these tax returns. 

Summary of proposed tax treatment for two rounds of measures under anti-epidemic fund

Measures covered by the tax exemption

  • Subsidy for factories to set up production lines of surgical masks under the local mask production subsidy scheme
  • Anti-epidemic support scheme for property management sector
  • Subsidies for construction industry stakeholders
  • Financial support to frontline workers engaged by government and Hong Kong Housing Authority service contractors
  • Retail sector subsidy scheme
  • Food licence holders subsidy scheme
  • Reimbursements of the actual fuel or electricity cost and/or subsidies to specified means of transport
  • Convention and exhibition industry subsidy scheme for organisers of exhibitions and international conventions/ conferences
  • Subsidies for live marine fish wholesale traders, specified fresh food wholesalers and fishing vessels with Mainland deckhands
  • Special grant for child care centres
  • Arts and culture sector subsidy scheme
  • Licensed guesthouses subsidy scheme
  • Travel agents subsidy scheme
  • Special grant to specified training bodies
  • Licensed hawkers subsidy scheme
  • Subsidy to employers and self-employed persons under the employment support scheme
  • Funding to non-government public bodies and private corporations for creating time-limited jobs
  • LAWTECH fund to SME law firms/barristers’ chambers and related persons
  • Subsidy for early deployment of 5G in public and private sectors
  • Funding to private enterprises under the distance business programme
  • Training subsidies for consultants in the construction sector
  • Training funds to bodies/ associations under the matching grant scheme for skills upgrading (on matching arrangement)
  • Relief grant for tutorial schools
  • Relief grants for providers of catering services for schools and post-secondary education institutions and providers of interest group and school bus services
  • One-off grant to registered sports coaches
  • Relief grants for freelance workers hired by subvented non-governmental welfare organisations to provide training and coaching for service users
  • Subsidy for the refuse transfer station account holders for transporting municipal solid waste
  • Subsidies for local primary producers
  • Special subsidy to Hong Kong Exchange’s participants and Securities and Futures Commission’s licensees
  • Cash subsidy for individual licensees in the estate agency sector
  • Reimbursement of the actual regular repair and maintenance costs and insurance premium to operators of specified means of transport, subsidy to eligible registered owners and passenger service licence holders of specified means of transport, eligible taxi and red minibus drivers, and employers of eligible green minibus and local ferry employees
  • Cinemas subsidy scheme and printing and publishing sector subsidy scheme
  • Subsidies/refund under tourism industry support schemes
  • Subsidies to the construction sector
  • Subsidy to operators of revitalizing historic buildings through partnership scheme and fly the flyover operation
  • Subsidy for the aviation sector
  • Subsidy to employers in catering sector and catering businesses under the catering business (social distancing) subsidy scheme
  • Amusement game centres subsidy scheme
  • Commercial bathhouses subsidy scheme
  • Fitness centre subsidy scheme
  • Subsidy to licensed places of amusement for anti-epidemic efforts
  • Place of public entertainment licence holder subsidy scheme
  • Mahjong / tin kau licence holder subsidy scheme
  • Subsidy scheme for beauty parlours, massage establishments and party rooms
  • Club-house subsidy scheme
  • Sports and recreational sites subsidy scheme
  • Financial assistance to MTR corporation limited in providing fare concession (on 50:50 matching arrangement)
  • Measures subject to tax
  • Payment from orders from the government and/or non-government parties under local mask production subsidy scheme
  • Payment to businesses for providing technology applications such as reusable masks
  • Administrative fees paid to service contractors of the government and the Hong Kong housing authority for disbursing allowances
  • Reimbursements and administrative fees paid to oil companies for providing price discounts on liquefied petroleum gas to taxis and public light buses
  • Reimbursements to the Hong Kong cyber-port management company limited for providing rental waivers
  • Reimbursements to landlords or operators of arts spaces for providing rental waivers
  • Administrative fees paid to MPF trustees for implementing the employment support scheme
  • Funding to Ebram centre for initial set-up cost as well as fees for mediators and arbitrators
  • Administrative fees paid to national sports associations and sports organisations for implementing anti-epidemic fund programme
  • Administrative fees paid to service providers for implementing the subsidy scheme for beauty parlours, massage establishments and party rooms
  • Measures with no tax consequence
  • Additional funding to the hospital authority for combating the epidemic
  • Grant to the Hong Kong productivity council under the local mask production subsidy scheme
  • Funding to government for global procurement of personal protective equipment
  • Funding to government for installation of emergency alert system
  • Funding to government for making available monitoring devices for home quarantine
  • Ex-gratia payment to prospective households of the two public housing estates designated as quarantine centres
  • Reimbursement to the trade development council for providing fee reduction and implementing the retail sector subsidy scheme
  • Special allowance for eligible working family allowance and student financial assistance households
  • Additional student study grant for 2019/20 school year
  • Reimbursement to the Hong Kong science and technology parks corporation for providing rental waivers
  • Funding to government departments and tax-exempt non-government public bodies for creating time-limited jobs
  • Reimbursement to the operator of police married quarters (PMQ) for providing rental waivers and subsidies to PMQs
  • Waiver of monthly fixed rent and management fees of the Kai Tak cruise terminal
  • Funding to government for engaging accounting firm(s) for conducting compliance checks and providing related services under catering business (social distancing) subsidy scheme
  • Temporary relaxation of the monthly threshold of the public transport fare subsidy scheme
     

For more information, contact a KPMG tax professional:

David Ling | +1 609 874 4381 | davidxling@kpmg.com

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