The Hong Kong government has proposed to introduce two developments to the taxation of insurers and licensed insurance brokers in Hong Kong.
The existing concessionary tax regime for qualifying reinsurance and captive insurance businesses is set to be extended to cover certain types of general insurance business of direct insurers and certain types of insurance brokerage business of licensed insurance broker companies.
The concessionary tax regime means that the profits arising from an insurance business, as defined in the Inland Revenue Ordinance as amended by the Amendment Bill, would be taxed at half the normal rate—8.25 percent for bodies corporate.
The amendment would mean that instead of being limited to certain captive insurers and professional reinsurers, the concessionary tax regime would also apply to general insurance business, general reinsurance business, and licensed insurance broker companies.
In addition, Lloyd’s and an association of underwriters approved by the Insurance Authority would also fall within the scope of the concessionary regime.
Hong Kong law firm Deacons noted that a critical limitation to the expansion of the concessionary regime is that certain contracts of insurance would be expressly excluded from the concession—such as contracts for the management of health, mortgage guarantee, motor vehicle damage, employee’s compensation liability, and owners’ corporation third-party liability risk.
The law firm suggested that the amendment means a much broader range of insurance businesses should be able to enjoy the reduced concessionary tax rate.
The amendment bill is consistent with the strategic objective of the Hong Kong Government of attracting insurance business to Hong Kong, according to Deacons.