Hong Kong proposes wider deductions for IP acquisitions and licence fees

Intra-group IP acquisitions

The Inland Revenue (Amendment) (Tax Deductions for Intellectual Property Expenditure) Bill 2026 would repeal the current blanket denial for patent, know-how and specified intellectual-property rights bought from an associate. For a purchase from a Hong Kong business associate, however, the buyer's deduction would be capped at the transferor's allowable acquisition deduction—disregarding the current section 16EC(4) restriction—plus qualifying research and development expenditure incurred for the right. The eligible specified rights remain copyright, performers' economic rights, protected layout-design and plant-variety rights, registered designs and registered trade marks.^[1][3][4][5]

Valuation and anti-abuse controls

Purchases from non-Hong Kong business associates could require an independent valuation report where expenditure exceeds a threshold to be specified later by Gazette notice. The Commissioner could refuse a deduction if the report is not supplied, and could aggregate related purchases between the same parties where they form one transaction in substance. A new main-purpose test would deny relief where obtaining a profits-tax benefit is a main purpose of an associate transaction. The bill therefore opens the current related-party restriction without creating an unrestricted deduction for intra-group IP transfers.^[1][2][5]

Offshore licensing income and upfront fees

The bill would narrow the present denial where a licensee uses the IP wholly or principally outside Hong Kong: the restriction would not apply where the related IP income is chargeable to profits tax under section 15I(1), part of the foreign-sourced income exemption regime. New section 16ED would also allow capital expenditure on a licence to use eligible IP to be deducted in equal instalments over the assessment year in which the expenditure is incurred and later years overlapping the licence term. The relief excludes fee amounts already deductible under section 16(1), is apportioned for mixed taxable and non-taxable use, and is subject to allocation, market-value and valuation controls.^[1][2][5]

Contract date is not commencement

Amendments to licence terms, termination or assignment could reduce future deductions or produce a taxable clawback under new section 16EE. Subject to enactment, the changes would apply to eligible rights or licences acquired under contracts entered into on or after 1 April 2026; contracts entered into before that date would remain under the existing rules. The date is a proposed transitional dividing line, not an enactment date. The Government says the bill is scheduled for First and Second Reading on 28 October 2026.^[1][2]