On 16 October 2026, the Government gazetted the Inland Revenue (Amendment) (Tax Deductions for Intellectual Property Expenditure) Bill 2026, which proposes to relax tax deduction arrangements for relevant capital expenditure on purchasing intellectual property (IP) rights or licences to use IP rights. This note summarises the public press release for Hong Kong businesses — general information only, not legal or tax advice.
Based on the IRD / Government press release. The Bill is still subject to Legislative Council scrutiny; final rules follow the enacted text.
Key proposals (press release summary)
The Bill proposes deductions for relevant capital expenditure in respect of:
- Purchase of eligible IP rights from associates — for example group affiliates, to encourage centralising IP management in Hong Kong and facilitate domestic intra-group transfers.
- Purchase of eligible IP rights used by a licensee outside Hong Kong — where licensing income is treated as Hong Kong-sourced under the foreign-sourced income exemption (FSIE) regime and chargeable to profits tax, the purchase expenditure may be deductible on a proportionate basis.
- Upfront licence fees for the use of eligible IP rights in a licensing arrangement, to support IP development and commercialisation.
Contract timing
Per the press release, the proposed amendments would apply to contracts entered into on or after 1 April 2026 for the purchase of eligible IP rights or for the licence to use eligible IP rights.
Safeguards against abuse
The Bill includes measures such as a main purpose test for purchases from associates, rules for calculating deductions when buying from Hong Kong associates, and a requirement for a third-party independent valuation report where capital expenditure on purchases from non-Hong Kong business associates (or associate licences) exceeds a specified threshold.
Legislative timeline and practical tips
- The Bill is scheduled for First and Second Reading in the Legislative Council on 28 October 2026 (confirm against the latest official notice).
- The Government links the measure to Budget announcements for 2025-26 and 2026-27 and to strengthening Hong Kong’s IP tax ecosystem alongside the patent box concessionary rate.
- Groups planning IP centralisation, cross-border licensing or intra-group transfers should diary contract dates, associate relationships, valuation needs and profits tax / FSIE characterisation — then re-check claim conditions after enactment.
Sources: IRD press release (2026-10-16) · 稅務局新聞稿（中文） · IRD Press Release index