Tax breaks to promote insurance sector
On 30 March 2020 the Financial Services Development Council (FSDC) published its paper “Insuring Hong Kong’s Future –Tax Recommendations to Enhance and Grow Hong Kong’s Insurance Industry”. This is a further step taken by the FSDC to enhance the competitiveness of the Hong Kong insurance market as a key global risk management centre and regional insurance hub. The several proposed tax measures would extend to both (re)insurance companies, brokers and individual policyholders.
For insurance companies and brokers, the FSDC paper looks particularly to the success of the Singapore market and discusses the unique position Hong Kong is in as regards potential growth from Belt and Road projects as well as Greater Bay Area development. There is a high volume of investment and finance projects in this regard that will involve specialty risks. The proposals include:
- Additional preferential tax rates for additional classes of general insurance business.
- Preferential tax treatment on premiums paid for reinsurance of risks to Hong Kong based reinsurers.
- Half tax rates for Hong Kong insurance and reinsurance brokers to encourage insurance brokers to establish in or relocate their regional hubs to Hong Kong.
- Tax exemption on interest income derived from fixed income / bond investments of insurance funds.
- Tax exemption on the investment income of Hong Kong insurers if their insurance funds’ assets are managed in Hong Kong.
- Review and address the tax issues faced by insurance groups with Hong Kong resident parent companies or regional holding companies / headquarters if they manage the assets of their overseas insurance group entities in Hong Kong.
- Tax deduction for the increase in reserves statutorily required by the regulator
For policyholders the proposals are focussed on making concessions to a wider range of medical, critical illness and life protection products to encourage Hong Kong people to make provision for healthier lives and plan for retirement. The proposals:
- Provide personal tax deductions on insurance premiums for a wider range of medical / critical illness and life protection products, in addition to existing qualifying Voluntary Health Insurance Scheme (VHIS) products.
- Provide personal tax deductions on voluntary contributions to qualifying retirement products with a view to encouraging individuals to save for retirement.
- Provide preferential tax rates (e.g. taxation at half-rate) on commission income earned by insurance agents / brokers for distributing qualifying insurance and retirement products to encourage distribution of those products.
- Provide preferential tax rates (e.g. taxation at half-rate) to insurance companies in respect of their underwriting of qualifying insurance and retirement products to encourage provision of those products.
In a press release of the same date, The Hong Kong Federation of Insurers welcomed the measures noting in particular the need to encourage growth amid economic downturn.
The full set of FSDC proposals can be found here.