What is changing
The Hong Kong Government published the Inland Revenue (Amendment) (Tax Deductions for Intellectual Property Expenditure) Bill 2026 on October 16, 2026. The Bill proposes to relax the existing deduction arrangements for eligible capital expenditure incurred to purchase intellectual-property rights or acquire licences to use intellectual-property rights. Subject to enactment, the amendments are intended to apply to contracts entered into on or after April 1, 2026.
The proposal is particularly relevant to technology companies, research businesses, software groups, media enterprises and multinational groups that centralise intellectual-property ownership or licensing in Hong Kong.
Important safeguards
The proposed rules are not an unrestricted deduction. They would include safeguards for related-party transactions, including:
- A main-purpose test for purchases of IP rights from associates.
- Special rules for calculating deductible expenditure where IP is purchased from Hong Kong associates.
- A requirement for an independent third-party valuation report where qualifying IP is purchased from a non-Hong Kong business associate, or where an IP licence is acquired from an associate, and expenditure exceeds the specified threshold.
These safeguards mean that a company should not treat the proposal as a simple accounting election. The commercial substance, pricing and ownership chain will matter.
Practical example
Assume a Hong Kong company signs a licence agreement on April 15, 2026, with an overseas group affiliate for the right to use software in its Asian operations. Before claiming any enhanced deduction, the company should retain the executed agreement, evidence of the rights obtained, a functional analysis explaining the business use, transfer-pricing support and, if required, an independent valuation report.
If the agreement was signed before April 1, 2026, the proposed commencement rule may not place it within the intended scope. The company should therefore preserve the contract date and avoid assuming that later amendments automatically create a new qualifying arrangement.
Action checklist
- Inventory all IP transactions signed on or after April 1, 2026.
- Identify whether each counterparty is an associate or independent third party.
- Separate purchase transactions from licence arrangements.
- Obtain valuation evidence early where a related-party transaction could exceed the threshold.
- Record the commercial purpose and expected income-producing use of the IP.
- Monitor the Legislative Council process before treating the proposal as final law.
The proposal may improve Hong Kong’s attractiveness as an IP-trading and financing platform, but the documentation burden is likely to be significant for related-party arrangements. Businesses should model the potential benefit while clearly labelling any claim as dependent on enactment and the final statutory text.