What changed in the proposal
The Inland Revenue (Amendment) (Tax Deductions for Intellectual Property Expenditure) Bill 2026, gazetted on October 16, 2026, proposes to relax Hong Kong’s rules for deducting capital expenditure incurred to purchase eligible intellectual-property rights or acquire licences to use eligible intellectual property. The proposal is intended to reduce the cost of IP transactions and support technology-intensive businesses.
The proposed amendments would apply to contracts entered into on or after April 1, 2026. That proposed backdated application means businesses that signed qualifying contracts after that date should preserve the relevant agreements and transaction records now, even though the Bill has not yet become law.
Which businesses may benefit
Potentially affected taxpayers include Hong Kong companies that:
- Purchase qualifying patents, copyrights, registered designs, protected plant varieties, or other eligible IP rights;
- Pay for licences to use eligible IP rights in producing chargeable profits; or
- Acquire technology from group companies as part of a restructuring, technology-transfer, or commercialisation arrangement.
The practical value depends on whether the expenditure is connected with the production of Hong Kong chargeable profits and whether the asset or licence falls within the final statutory definition.
Related-party safeguards
The proposal is not an unrestricted deduction. It would introduce a main-purpose test for purchases from associates. It also contemplates special calculations for purchases from Hong Kong associates and an independent third-party valuation report where substantial acquisitions from non-Hong Kong business associates or related-party licences exceed a specified threshold.
For example, a Hong Kong subsidiary buying software rights from its overseas parent should retain an arm’s-length pricing analysis, evidence of commercial use, board approvals, payment records, and a defensible valuation. A paper transfer with no identifiable business purpose may face challenge even if the legal agreement is formally complete.
Action checklist
- Inventory IP purchase and licence contracts signed on or after April 1, 2026.
- Separate eligible IP expenditure from non-qualifying implementation, marketing, or general service costs.
- Map each IP right to the Hong Kong profits it helps generate.
- Obtain independent valuation support early for material related-party transactions.
- Monitor the Bill’s passage before filing a final tax position.
The proposal creates planning potential, but taxpayers should avoid treating it as enacted law until the Legislative Council process is complete.