Hong Kong’s Financial Services Development Council (FSDC) has put forward numerous tax recommendations designed to enhance its position as a regional insurance, reinsurance, and risk management hub.
The FSDC describes the Hong Kong sector as one of the most open insurance markets in the world, intertwined with numerous industries and parts of society across the region.
The continued growth of the region’s insurance market is seen as beneficial to both individuals and Hong Kong as a whole, and the recommendations announced by the FSDC aim to boost the regional insurance industry.
“Taking into account the breadth and reach of the industry, the FSDC has focused on certain key areas that are broad enough such that they would be beneficial to a large proportion of Hong Kong’s population, and, at the same time, effective in growing Hong Kong’s insurance industry, making it vibrant and competitive,” explains the FSDC.
Concerning tax measures to promote and enhance the competitiveness of the Hong Kong general insurance and life insurance businesses, the FSDC has made the following recommendations:
- Extend the applicability of preferential tax rates to additional classes of general insurance business;
- Extend the reinsurance tax incentives to direct insurers in respect of their reinsurance business;
- Provide preferential tax treatment to encourage Hong Kong insurers to cede their risk to Hong Kong based reinsurers to boost those reinsurers’ attractiveness operating out of Hong Kong;
- Provide preferential tax rates (e.g. taxation at half-rate) to Hong Kong insurance and reinsurance brokers;
- Provide a tax exemption on interest income derived from all fixed income / bond investments of insurance funds;
- Provide a tax exemption on the investment income of Hong Kong insurers if their insurance funds’ assets are managed in Hong Kong;
- 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; and
- Provide a tax deduction for the increase in reserves statutorily required by the regulator.
According to the FSDC, these recommendations will further uplift Hong Kong’s position as a reinsurance and risk management centre. Some of the measures outlined above target reinsurance business and the region’s attractiveness to overseas markets.
The report notes that as a result of the evolving tax landscape and international pressures on substance requirements, Hong Kong should be well placed to assume increased levels of reinsurance business from traditional offshore reinsurers, and ultimately develop into a full-fledged regional reinsurance hub.
The FSDC has also issued some tax recommendations designed to benefit policyholders:
- 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; and
- 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.
“The FSDC hopes that the recommendations will create a better cluster of insurance players in Hong Kong, leading to a strengthened ecosystem, which will drive Hong Kong’s insurance market. Given insurance is intertwined with many industries, businesses and facets of society, the continued growth of the insurance sector will bring benefits to Hong Kong individuals and the economy as a whole,” says the FSDC.
