About the author
Written by Maëva Slotine
Maëva Slotine is the Founding Partner of Slotine. She advises technology companies, IP holders and family offices on Hong Kong tax, the patent box regime and cross-border IP structuring.
Hong Kong introduced a patent box regime in 2024. On election, it charges the qualifying portion of a company’s eligible intellectual property income to profits tax at 5% instead of the standard 16.5%. The regime is built on the OECD nexus approach, which means the relief is tied to the research and development a company has actually carried out to create the intellectual property. For technology, life sciences and IP-heavy businesses, and for anyone structuring an IP transaction, it is a meaningful incentive that rewards genuine substance in Hong Kong.
This guide explains what qualifies, how the 5% portion is calculated, how to elect, the transitional relief for early years, the local registration requirement that begins in July 2026, and how the regime sits alongside the foreign-sourced income exemption. It is written for companies and their advisers who want to structure their IP holdings and R&D to actually benefit from the rate.
portion of eligible IP income (IRD)
tax rate, for comparison
Ordinance 2024 enacted
the regime applies
Structuring IP or R&D in Hong Kong? Slotine advises on patent box eligibility, R&D fraction planning and IP transaction structuring.
Hong Kong’s patent box: the 5% concessionary IP tax rate
The Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Ordinance 2024 was enacted on 5 July 2024. It applies in respect of a year of assessment beginning on or after 1 April 2023, so it reaches back to the 2023/24 year. On election, the concessionary portion of a taxpayer’s assessable profits from eligible IP income is charged at 5%.
To qualify, three conditions must be met: the taxpayer is an eligible person, the taxpayer derives eligible IP income from an eligible intellectual property, and an election has been made in respect of that intellectual property. An eligible person is someone entitled to derive eligible IP income from an eligible intellectual property. Importantly, this can include a licensee, not only the owner, provided the licensee has incurred eligible R&D expenditure on the intellectual property and meets the other conditions.
What qualifies as eligible intellectual property
Eligible intellectual property is defined in Schedule 17FD to the Inland Revenue Ordinance and, in each case, the intellectual property must be generated from an R&D activity. There are three categories. Hong Kong has taken a deliberately liberal approach, extending eligibility beyond patents to plant variety rights and to copyright in software.
Eligible patents. A patent granted under the Patents Ordinance (Cap. 514) or by a patent office outside Hong Kong. A patent application under Cap. 514 or filed abroad also qualifies.
This includes short-term patents, standard patents (original grant and re-registration routes), and, for overseas patent offices, utility models and inventor’s certificates.
Note: from 5 July 2026, IP whose filing date is on or after that date is subject to a local registration requirement, see the section below.
Eligible plant variety rights. A right granted under the Plant Varieties Protection Ordinance (Cap. 490), or a corresponding right or application under foreign law.
Note: from 5 July 2026, IP whose filing date is on or after that date is subject to a local registration requirement, see the section below.
Eligible copyright in software. Copyright in software subsisting under the Copyright Ordinance (Cap. 528) or under foreign law.
Registration is generally not required, but the software must fall within the scope of the relevant legal protection. This category is a deliberately liberal aspect of the Hong Kong regime and covers a broad range of software developed by technology and life sciences businesses.
An R&D activity, for these purposes, means work in the natural or applied sciences to extend knowledge, systematic or experimental study, original planned investigation to gain new knowledge, or the application of research findings to produce new or substantially improved products, processes or services. The IRD sets out its interpretation in its practice note on R&D expenditure deductions.
The local registration requirement from 5 July 2026
A change that matters for anyone filing new IP is approaching. The Ordinance sets a “specified date” of 5 July 2026, which is 24 months after the Ordinance commenced.
For eligible patents and eligible plant variety rights whose filing date is on or after 5 July 2026 (24 months after the Ordinance commenced), an election is not valid unless there is a corresponding local Hong Kong registration.
For patents, the requirement targets those that are not a standard patent (O), a standard patent (O) application, a short-term patent or a short-term patent application. The standard patent (O) and short-term patent routes are Hong Kong filings by design, so in practice the requirement bites on IP filed only abroad from that date.
Failing the local registration condition is also a circumstance that triggers withdrawal of the concession.
For companies planning to rely on the patent box for IP developed from mid-2026 onwards, this makes local Hong Kong filing part of the tax plan, not an afterthought.
What qualifies as eligible IP income
Eligible IP income covers four types of income derived from an eligible intellectual property.
Income from the exhibition or use of, or the right to exhibit or use, the intellectual property, whether in or outside Hong Kong, including income from imparting knowledge connected with its use.
Income from the sale of the eligible intellectual property.
Where the price of a product or service includes an amount attributable to the eligible IP, the portion of that sale income which, on a just and reasonable basis, is attributable to the value of the property (calculated consistently with the OECD rules).
Amounts of insurance, damages or compensation derived in relation to the eligible intellectual property.
The nexus approach: how the 5% portion is calculated
Not all of the eligible IP income is taxed at 5%. Only the concessionary portion is, and that portion is set by the R&D fraction under the OECD nexus approach. The idea is simple: the more of the underlying R&D a company did itself (or through unrelated parties), the larger the share of income that gets the concessionary rate.
R&D fraction, capped at 100%:
F = (EE x 130%) / (EE + NE)
where EE is the eligible R&D expenditure on the intellectual property and NE is the non-eligible expenditure.
Concessionary portion:
P = I x F
where I is the assessable profits from the eligible IP income and F is the R&D fraction. The 30% uplift on eligible expenditure is part of the OECD standard and can lift the fraction towards the 100% cap.
Assume a company with eligible R&D expenditure (EE) of HK$7 million, non-eligible expenditure (NE) of HK$3 million (for example an IP acquisition cost), and assessable profits from the eligible IP income (I) of HK$5 million.
- R&D fraction F = (7,000,000 x 130%) / (7,000,000 + 3,000,000) = 9,100,000 / 10,000,000 = 91%.
- Concessionary portion P = 5,000,000 x 91% = HK$4,550,000, taxed at 5% = HK$227,500.
- Remaining HK$450,000 taxed at 16.5% = HK$74,250 (the two-tiered rates do not apply once an election is made).
- Total tax about HK$301,750, against HK$825,000 if all HK$5M were taxed at 16.5%.
Figures illustrative only. Actual outcomes depend on eligible IP definition, R&D substance and per-asset tracking.
Want to know your R&D fraction before you elect? Slotine can model the concessionary portion and confirm eligibility per asset.
R&D expenditure: what counts as eligible
The split between eligible expenditure (EE) and non-eligible expenditure (NE) drives the fraction, so it is worth getting right.
R&D carried out by the eligible person itself, whether in or outside Hong Kong.
R&D outsourced to a non-associated person, whether in or outside Hong Kong.
R&D outsourced to an associated person that is a Hong Kong resident, where the activity is carried out in Hong Kong.
R&D outsourced to an associated Hong Kong resident but carried out outside Hong Kong.
R&D outsourced to an associated person that is not a Hong Kong resident.
The cost of acquiring the eligible intellectual property, or a right in it, from another person.
The acquisition cost of the IP is non-eligible, which is the key reason a bought-in IP asset produces a lower fraction than one developed in-house.
Transitional relief for 2023/24 to 2025/26
Tracking eligible and total expenditure asset by asset takes systems that many companies did not have in place when the regime began. The Ordinance therefore allows a transitional measure.
For the basis periods for the years of assessment 2023/24 to 2025/26, an eligible person may calculate the R&D fraction using a three-year rolling average of eligible expenditure and overall expenditure, rather than strict asset-by-asset tracking.
After this three-year period, the taxpayer must move to the standard R&D fraction. Tracking and tracing systems should be built during this window.
How to elect for the patent box
When the concession can be withdrawn
The concession is not permanent if the underlying IP falls away.
Concession is withdrawn where, in a year of assessment:
- the eligible patent is unconditionally revoked
- a patent application is abandoned, refused or withdrawn
- a plant variety right is cancelled or no longer subsists
- a plant variety right application lapses, is declined or withdrawn
- the local registration conditions (IP filed on or after 5 July 2026) are not met
When withdrawal applies, the concession stops for that year and later years, and the concessionary portions granted in earlier years are treated as trading receipts of the relevant year, with credit for the tax already charged at the concessionary rate. In other words, a clawback with tax credit relief.
Interaction with the foreign-sourced income exemption
Hong Kong companies with IP income often need to think about two regimes at once. The patent box applies, on election, to the assessable portion of eligible IP income at 5%. The foreign-sourced income exemption (FSIE) regime concerns foreign-sourced income, including certain IP royalties, received in Hong Kong by members of multinational groups, and can exempt it where the economic substance or nexus conditions are met.
Applies, on election, to the concessionary portion of assessable eligible IP income at 5%. Tied to the R&D fraction and to substance in Hong Kong. Election is irrevocable and removes the two-tiered rates.
Potential exemption for foreign-sourced IP income received in Hong Kong by MNE group members, subject to the FSIE regime’s own nexus and substance conditions.
Global comparison: how Hong Kong’s 5% compares
Hong Kong’s 5% rate is competitive against the main established regimes. The figures below are the headline concessionary rates; the conditions differ and each should be checked for a specific case.
5%
OECD nexus approach. Patents, plant variety rights, copyrighted software. R&D fraction with 30% uplift.
5% or 10%
Concessionary rate on qualifying IP income, administered by the Economic Development Board.
10%
Effective rate on qualifying patent profits.
10%
Effective rate, increased from 6.25% for accounting periods from 1 October 2023. Available for periods commencing before 1 January 2027.
Hong Kong therefore sits at the lower end among comparable OECD-aligned regimes, which supports its positioning as an IP-holding and commercialisation base for the Asia-Pacific region.
Deal-moment IP structuring
The patent box changes the calculus at several transaction points. It rewards IP that is developed with Hong Kong R&D substance, and it penalises, through a lower fraction, IP that is simply acquired. That has practical consequences.
Acquisition cost is non-eligible expenditure, so a bought-in IP asset starts with a lower R&D fraction than one developed in-house. This shapes whether and how to bring IP onshore.
Where R&D is performed, and by whom (the taxpayer, unrelated parties, or associated Hong Kong residents in Hong Kong), directly affects the fraction.
A licensee that incurs eligible R&D can qualify, so licensing structures should be designed with the fraction and arm’s length pricing in mind.
Group reorganisations should keep the IP-owning entity and the R&D-performing substance aligned to maximise eligible expenditure.
Common mistakes to avoid
Frequently asked questions
Related guides
Slotine advises technology companies, IP holders and M&A parties on Hong Kong patent box structuring and cross-border IP tax planning. Contact us before your next IP transaction or restructuring.