On February 28, 2024, the Financial Secretary of Hong Kong announced the Government's Budget for the 2024-2025 fiscal year, unveiling several significant policies and emphasizing the life and health technology industry, clearly outlining multiple major benefits for the development of the biopharmaceutical industry. Hong Kong possesses a solid foundation in life and health technology research, and the government is continuously improving the supporting infrastructure to inject vitality into this strategic emerging industry.
In the budget, the government provides comprehensive support for the biopharmaceutical industry in Hong Kong in three areas: policy support, financial aid, and tax incentives.
Policy Support
Under the complementary policies of the "High Skill Talent Pass" and the "Technology Talent Admission Scheme," it will be easier for Hong Kong to attract global leading research talent and scientific teams.
The establishment of the "Greater Bay Area International Clinical Trial Center" in the "Heung Hom Technology Innovation Cooperation Zone" will support more pharmaceutical and medical device companies in conducting clinical trials in Hong Kong.
Under the "1+" mechanism, which came into effect last year, the establishment of the "Hong Kong Drug and Medical Device Regulatory Center" aims to accelerate the approval of new drugs and medical devices to stimulate research and development activities in Hong Kong.
Financial Support
Allocating HKD 6 billion to establish the "Life and Health R&D Institute," funding local universities in Hong Kong to collaborate with domestic and overseas institutions to promote related technology research and development and the transformation of results.
Launching a HKD 10 billion "New Industrial Acceleration Scheme" to provide up to HKD 200 million in funding for companies engaged in life and health technology and other fields, with a funding ratio of 1:2.
Establishing a "Life and Health Innovation Research Center" in the Hong Kong Zone of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, allocating HKD 200 million to support life and health technology startups in the zone.
Tax Incentives
Continuing last year's "patent box" tax incentive initiative, the relevant tax incentive policies will be implemented within 2024 (the announcement was completed in March, and it will be submitted to the Hong Kong Legislative Council on April 10), and are expected to apply retroactively for the 2023/24 tax year. The "patent box" refers to a lower tax rate on profits derived from eligible intellectual property, reduced from the current standard profits tax rate of 16.5% to 5%, encouraging companies to increase their R&D investment in Hong Kong and commercialize intellectual property such as patents.
Although companies applying for the "patent box" must meet certain conditions, Hong Kong will define the coverage of eligible intellectual property income in a more competitive manner, including:
Income derived from demonstrating or using eligible intellectual property, or teaching knowledge related to eligible intellectual property;
Income from the sale of eligible intellectual property;
A portion of the income derived from the sale of products or services attributed to the value of eligible intellectual property, based on a fair and reasonable benchmark; and
Amounts received from insurance, damages, or compensation related to eligible intellectual property.
We understand that many biopharmaceutical companies may have R&D activities and intellectual property across multiple countries/regions, and effectively leveraging Hong Kong's "patent box" system through reasonable arrangements may bring significant tax benefits to these companies.
It is worth mentioning that the budget proposal frequently references the Heung Hom Cooperation Zone. While specific policies for the Hong Kong Zone of the Heung Hom Cooperation Zone are yet to be implemented, the Shenzhen Zone announced its overall development plan in August 2023 and introduced relevant tax incentive policies in January 2024, including:
A reduced corporate income tax rate of 15% for qualified encouraged industry enterprises located in specific enclosed areas of the Shenzhen Zone, where the enterprises must base their main business on the industrial categories specified in the tax preference directory for income tax in the Shenzhen Zone, and the main business revenue must account for over 60% of total revenue, engaging in substantial operations. This policy will be effective from January 1, 2023, to December 31, 2027;
Exemption of personal income tax for Hong Kong residents working in the Shenzhen Zone on the portion of their tax burden that exceeds the tax burden in Hong Kong, effective from January 1, 2023, to December 31, 2027.
In addition, the overall development plan proposes special customs supervision in the Shenzhen Zone with a "one line opened, second line controlled, free within the zone" regulation model for goods, and specific policies will be developed by relevant authorities.
It that the Hong Kong government is making comprehensive efforts to promote the accelerated development of the biopharmaceutical industry in Hong Kong by improving policies and regulations, increasing funding investments, and optimizing the tax environment, while also connecting with the Greater Bay Area on the mainland (especially the Heung Hom Cooperation Zone) to build an international life and health technology center. We have every reason to believe that, with the strong support of the government, biopharmaceutical companies in Hong Kong will certainly encounter new development opportunities.
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The Technology Talent Admission Scheme has been in place since 2018 and has undergone annual optimization measures aimed at quickly processing arrangements to bring in qualified overseas and mainland technology talent to Hong Kong for research and development work. Companies engaged in specified technology sectors, including artificial intelligence and biotechnology R&D, are eligible to apply. Companies granted quotas by the Innovation and Technology Commission can accordingly apply for work visas or entry permits for qualified individuals within the 24-month validity period of the quota.
The new drug approval mechanism, referred to as the "1+" mechanism, allows new drugs for the treatment of severe or rare diseases to apply for registration in Hong Kong by submitting a reference drug regulatory agency's approval, provided they meet specific requirements.
Eligible intellectual property includes patents, copyright-protected software, and plant variety rights.