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Frequently Asked Questions & Answers on Completion of IR1482 – Tax Concessions for Intellectual Property Income (applicable for year of assessment 2023/24 and subsequent years)

Introduction

For the benefit of the tax paying public and their tax representatives, some frequently asked questions and their answers are listed below for general information and guidance.

General

Starting from which year of assessment the tax concessions for intellectual property income under Schedule 17FD (“the Tax Concessions”) to the Inland Revenue Ordinance (“IRO”) can apply?

As from the year of assessment beginning on 1 April 2023, eligible persons may claim the Tax Concessions in relation to eligible IP income derived from eligible intellectual properties.

What is meant by “eligible person”?

Under section 1(1) of Schedule 17FD to the IRO, “eligible person” is defined to mean a person who is entitled to derive eligible IP income from an eligible intellectual property.

What are the Tax Concessions?

Upon the making of a valid election in respect of an eligible intellectual property, the concessionary portion of assessable profits from eligible IP income derived from an eligible intellectual property in a year of assessment would be taxed at the concessionary tax rate of 5%.

If I want to claim the Tax Concessions, what should I do?

An irrevocable election in respect of the eligible intellectual property has to be made in writing. For specifications and/or requirements for a valid election, please refer to Note 15 of the form.

Who should complete and submit the form?

For a year of assessment, an eligible person is required to complete the form for submission together with the Profits Tax Return if:

(a)	the person wishes to make an election for the Tax Concessions in respect of an eligible intellectual property from which the eligible IP income was derived in the basis period;
(b)	the person has made an election for the Tax Concessions in respect of an eligible intellectual property in a preceding year of assessment and eligible IP income was derived from that eligible intellectual property in the basis period; or
(c)	any of the circumstances referred to in Note 17 of the form occurred in the basis period in respect of the eligible intellectual property concerned.

Section 1 – Basis Period

Can I report different basis periods for the return and the form?

No. The basis period of both of the return and the form should be the same.

Section 2 – Details of Eligible IP Income and Concessionary Portions of Assessable Profits

What is meant by “eligible intellectual property”?

Under section 1(1) of Schedule 17FD to the IRO, "eligible intellectual property" is defined to mean any of the following intellectual property that is generated from a research and development ("R&D") activity:

(a)	an eligible patent;
(b)	an eligible plant variety right;
(c)	a copyright subsisting in software under the Copyright Ordinance (Cap. 528) or under the law of any place outside Hong Kong.

For meaning of "R&D activity", "eligible patent" and "eligible plant variety right", please refer to Notes 6 to 8 of the form.

What is meant by “eligible IP income”?

Under section 7(1) of Schedule 17FD to the IRO, "eligible IP income" is defined to mean an income of any one or more of the following descriptions:

(a)	income derived from an eligible intellectual property in respect of (i) the exhibition or use of, or a right to exhibit or use, (whether in or outside Hong Kong) the property; or (ii) the imparting of, or undertaking to impart, knowledge directly or indirectly connected with the use (whether in or outside Hong Kong) of the property;
(b)	income derived from the sale of an eligible intellectual property;
(c)	if the price of a sale of a product or service includes an amount that is attributable to an eligible intellectual property ─ such portion of the income from that sale as, on a just and reasonable basis, is attributable to the value of the property ("embedded IP income"); and
(d)	amount of insurance, damages or compensation derived in relation to an eligible intellectual property.

For the purpose of section 2.3, how should I ascertain the total amounts of assessable profits derived and/or adjusted losses sustained?

The amounts should be the aggregate of the corresponding amounts in section 3.2(j) in respect of each eligible intellectual property. In other words, the aggregate assessable profits from eligible IP income in respect of all eligible intellectual properties with assessable profits should be input in section 2.3(a). Similarly, the aggregate adjusted losses from eligible IP income in respect of all eligible intellectual properties with adjusted losses should be input in section 2.3(b).

10.

Can I utilise the adjusted loss from an eligible intellectual property to set off against the assessable profits derived from another eligible intellectual property in computing the amount for section 2.3?

No. An adjusted loss from an eligible intellectual property should not be set off against the assessable profits derived from another eligible intellectual property.

11.

For the purpose of section 2.4, how should I ascertain the total amounts of concessionary portions of assessable profits derived and/or adjusted losses sustained?

The amounts should be the aggregate of the corresponding amounts in section 3.2(m) in respect of each eligible intellectual property. In other words, the aggregate concessionary portions of assessable profits from eligible IP income in respect of all eligible intellectual properties with assessable profits should be input in section 2.4(a). Similarly, the aggregate concessionary portions of adjusted losses from eligible IP income in respect of all eligible intellectual properties with adjusted losses should be input in section 2.4(b).

12.

I have an eligible patent being unconditionally revoked in the basis period, thus my answer to section 2.5 is “Yes”. What information should I provide in completing the form?

You should provide the information in respect of the eligible intellectual property concerned by completing section 4 and Table A.

Section 3 – Details of Eligible Intellectual Property in respect of which the Tax Concessions are claimed

13.

How should I count the number of eligible intellectual properties for the purpose of section 3.1?

The number of eligible intellectual properties can be counted in terms of the number of groups or collections of eligible intellectual properties covering the same invention or similar technical content.

14.

How should I provide details in respect of each eligible intellectual property covered in section 3.1?

You are required to provide in section 3.2 details in respect of each eligible intellectual property covered in section 3.1.

15.

How many eligible intellectual properties in respect of which details can be provided in section 3.2 of the form?

Details of up to 25 eligible intellectual properties can be provided in the form.

16.

I have more than 25 eligible intellectual properties in respect of which the Concessions are claimed for the year of assessment. As I can only provide details of 25 eligible intellectual properties in section 3.2 of the form, how can I give information on the remaining eligible intellectual properties?

You should provide details of the remaining eligible intellectual properties in the same format on a separate sheet. In the separate sheet, please add your file number, year of assessment concerned and a remark “Additional” and sign at the bottom of the sheet.

17.

As far as I know, there is no need to make an application for copyright, and there are no formalities such as registration, publication, or examination for the protection in Hong Kong. What should I input for the date of filing of application in relation to the copyright subsisting in software in section 3.2(d)?

For a copyright subsisting in software, you should input the date on which the work was reduced to a material form (i.e. recorded in writing or in some other way such as on a disk or saved on a computer). Besides, the date stated in section 3.2(d) will be input automatically as the date of grant in section 3.2(e).

18.

I derived income from an intellectual property which was not generated from R&D activities, thus my answer to section 3.2(h) is “No”. Can I claim the Tax Concessions in relation to the intellectual property concerned?

No. The Tax Concessions can only apply to an eligible IP income derived from an eligible intellectual property. As defined in section 1(1) of Schedule 17FD to the IRO, an eligible intellectual property must be generated from an R&D activity.

19.

For the purpose of section 3.2(j), how can I ascertain the assessable profits (or adjusted loss, as the case may be) from eligible IP income?

Pursuant to section 11 of Schedule 17FD to the IRO, the assessable profits from eligible IP income should be computed in accordance with the following formula:


	I = A – B – C + D

where	I	means the assessable profits from the eligible IP income;
	A	means the eligible IP income;
	B	means the outgoings and expenses to the extent that they are incurred during the basis period for the year of assessment (“relevant basis period”) to produce A;
	C	means the allowances allowed under Part 6 of the IRO (depreciation, etc.), to the extent that the relevant assets counted for the allowances are used during the relevant basis period to produce A; and
	D	means the balancing charge to be made under Part 6 of the IRO, to the extent that the relevant assets counted for the balancing charge are used during the relevant basis period to produce A.

The adjusted loss is computed on the same basis.

20.

For the purpose of section 3.2(m), how can I ascertain the concessionary portion of assessable profits (or adjusted loss, as the case may be) from eligible IP income?

Pursuant to section 10 of Schedule 17FD to the IRO, the concessionary portion of assessable profits from eligible IP income should be computed in accordance with the following formula:


	P = I × F

where	P	means the concessionary portion;
	I	means the assessable profits from the eligible IP income; and
	F	means the R&D fraction applicable to those assessable profits.

The concessionary portion of an adjusted loss is computed on the same basis.

21.

How is the R&D fraction applicable to assessable profits from an eligible IP income computed?

The R&D fraction applicable to assessable profits from an eligible IP income is computed in accordance with the following formula and capped at 100%:

	EE x 130%

	EE + NE

	where	EE	means eligible R&D expenditure
		NE	means non-eligible expenditure

For the meaning of "eligible R&D expenditure" and "non-eligible expenditure", please refer to Notes 25 and 29 of the form respectively.

Section 4 – Concessionary Portions of Assessable Profits being regarded as Trading Receipts under Certain Circumstances

22.

What should I check in respect of the amounts input in section 4.2?

The amounts stated in section 4.2(a) and section 4.2(b) should be the same as the total amounts of column (H) (i.e. total concessionary portions of assessable profits) and column (I) (i.e. total concessionary portions of adjusted losses), respectively, in Table A.

23.

I have only one eligible intellectual property that met one of the circumstances referred to in Note 17 of the form and the amount of concessionary portion of assessable profits (or adjusted loss, as the case may be) has been stated in section 4.2. Do I still need to complete Table A?

Yes. Table A should be completed to provide details of the eligible intellectual property concerned.

24.

How many eligible intellectual properties in respect of which details can be provided in Table A?

Details of up to 25 eligible intellectual properties can be provided in Table A.

25.

I have more than 25 eligible intellectual properties, details of which need to be provided for the purpose of section 4 of the form. As I can only provide details of 25 eligible intellectual properties in Table A, how can I give information on the remaining eligible intellectual properties?

26.

What are the key notes for completing Table A?

For columns (A) to (C), the name, nature and reference number of the eligible intellectual property stated therein must be the same as those reported in IR1482 for the year(s) of assessment in which the concessionary portions of the assessable profits and/or adjusted losses from the eligible intellectual property concerned were derived.

In completing columns (H) and (I), any concessionary portion of adjusted loss for a year of assessment should not be set off against the concessionary portion of assessable profits for another year of assessment.