R&D Tax Incentives Hong Kong — Section 16B

Qualifying R&D under s.16B(1) includes activities that are innovative, involve technical uncertainty, are systematic or investigative in nature, and aim to advance knowledge or create new/improved products, processes, or services. Routine product testing, market research, and quality control do NOT qualify.

The first HKD 2 million of qualifying R&D expenditure paid to a prescribed research institution attracts a 300% deduction — meaning a HKD 2M payment reduces assessable profits by HKD 6M. Expenditure above HKD 2M at a prescribed institution attracts 200%. In-house R&D qualifies for 100% (basic deduction only), plus potentially 200% if conditions met.

The list of prescribed research institutions includes the eight HK universities (HKU, CUHK, HKUST, PolyU, CityU, HKBU, HSUHK, EdUHK), various government-funded R&D centres, and other approved institutions listed in Schedule 45 of IRO. The list is updated periodically.

Only if the Mainland lab is a prescribed research institution under HK law — which most are not. For non-prescribed institution outsourcing, only the basic 100% deduction applies (if the expenditure otherwise qualifies). Subcontracting R&D to overseas non-prescribed labs does not attract enhanced rates.

Yes. Capital expenditure on R&D assets (equipment, machinery used for R&D) qualifies for capital allowances under s.16B(3), not the enhanced revenue deduction. Revenue expenditure (staff costs, consumables, payments to research institutions) qualifies for the enhanced deduction. The distinction requires careful analysis.

R&D deductions that cannot be utilised in the year because the company has insufficient profits can be carried forward indefinitely under s.19C IRO and offset against future profits. This makes early-stage R&D expenditure valuable even when the company is loss-making.