Profits Tax - Intellectual Property
Purchase cost of Patent, Know-how
Section 16E of Inland Revenue Ordinance allows full deduction for
incurred for acquiring
patent rights or rights to any know-how for earning assessable
profits. If not for Section 16E, they would have been
disallowed because of capital nature.
Only registered patent is deductible. But no registration is
required for know-how under Hong Kong law.
is defined to mean the rights to do or authorize the doing of
anything which would, but for that right, be an infringement of
is defined to mean any industrial information or techniques likely
to assist in the manufacture or processing of goods or materials.
To qualify the deduction, the patent etc. must be
for production of assessable profits and
not one purchased from an “associate”.
If it is only partly used for
production of assessable profit, make apportionment for the
expenditure between "deductible" and "non-deductible". From
2011/12 onward, the condition of "use in Hong Kong" is no longer
“Associate” is widely defined to cover many
closely-connected persons. This condition is obviously an
There is no requirement that the patent etc.
acquired must be used in the basis period. If the claimant can
prove that it will be used in the production of assessable profits, it
cost include related legal expenses and valuation fee.
outright purchase of legal and economic ownership is deductible.
No deduction for acquisition of a “licence” for use over a long
period - S16E(9) & S16EA(13).
According to Section 16E(3). If the patent having attracted the
deduction is sold, the sales proceeds will be deemed taxable
receipt up to the amount of deduction as previously
Purchase cost of Trademark, Copyright, Design
cost of copyright or design or trademark is deductible by 5
equal installment in 5 years of assessment according to Section
16EA. The trademark or design must be a registered one.
But no registration is required for copyright under Hong Kong
law. Other conditions for deduction under profits tax are same
as those of Patent - please refer to above.
Registration cost of patent, trademark, design
cost of registration
which are used for earning assessable profits even though they are capital
Payments for use of Intellectual Property
payments for use of Intellectual Property are deductible if they can satisfy the
general test of Section 16(1) "in the production of chargeable
profits". Because they are revenue nature, Section 16E or
Section 16EA need not