2025/26 Hong Kong Pre-budget

Empowering the economy for sustainable growth

Insight
10 minute read
January 2025

Echoing the Financial Secretary’s call to advance economic development, PwC’s recommendations focus on four key pillars: building and retaining a skilled workforce, leveraging Hong Kong’s strengths, fostering pervasive innovation, and developing the ‘silver’ economy.

With the 2025/26 Hong Kong Budget announcement by Financial Secretary Paul Chan Mo-po scheduled for 26 February 2025, we present our forecasts and recommendations to the HKSAR Government. Given the higher-than-expected budget deficit, we have outlined a series of recommendations for the Government’s consideration in formulating its next budget. These recommendations aim to bolster Hong Kong as a leading international financial centre and as a hub for international shipping and trade.

Predictions Our forecasts on Hong Kong’s fiscal situation

HK$94.8 bn

budget deficit is estimated for 2024/25

PwC expects the Government to record a HK$94.8 billion consolidated budget deficit for the fiscal year 2024/25, based on projected revenue of HK$689.4 billion and expenditure of HK$784.2 billion. 

HK$639.8 bn

fiscal reserves are estimated as at 31 March 2025

PwC estimates fiscal reserves of HK$639.8 billion as at 31 March 2025 – equivalent to approximately ten months of total government expenditure.

Actions Our recommendations

To establish a one-stop facilitation service (e.g. visa applications, employment pairing, and arranging education for their children) to create a welcoming environment for international talent
To provide financial support to working parents through subsidies for daycare services and tax deductions for hiring domestic helpers and caretakers

To expedite the implementation of the proposed enhancements to the preferential tax regime for family-office investment holding vehicles managed by single family office (SFO)
To accelerate Hong Kong permanent residency for principals and immediate family members of eligible SFOs
To streamline employment visa processes for foreign investment professionals of eligible SFOs

To expedite the implementation of the proposed enhancements to the preferential tax regimes for investment funds and carried interests

To waive the buy-side stamp duty on stock trading to boost trading volume

To offer competitive tax and non-tax/financial incentives to attract more multinational enterprises to establish regional headquarters in Hong Kong, subject to requirements on local spending and employment

To accelerate the expansion of Hong Kong’s tax treaty network, especially with Belt and Road jurisdictions

To expedite the implementation of proposed enhancement to existing maritime sector tax concessions

To implement tax incentives and support measures to foster a commodity trading ecosystem and expand high value-added logistics services to facilitate synergistic development

To collaborate with local Chinese mainland government to promote the maritime and aviation industry, aiming for a win-win situation for Chinese mainland and Hong Kong

To implement fiscal measures aimed at encouraging ‘green shipping and financing’ among industry players, e.g. subsidise vessel green transformation, develop eco-friendly port facility usage and promote green financing

To relax intellectual property (IP)-related tax rules (e.g. deductibility of IP expenditure, double tax relief)

To extend the enhanced tax deduction to cover Research and Development activities undertaken in GBA

To expand the New Industrialisation Funding Scheme to help manufacturers upgrade facilities and equipment, and/or adjust the funding matching basis

To lead the deployment of AI in government services by funding pilot programmes such as automated immigration clearance systems using facial recognition in collaboration with the Shenzhen Government

To enhance Hong Kong’s AI start-up ecosystem by encouraging collaboration between Cyberport, HKSTP, and AI incubators in the GBA

To offer tax and non-tax incentives to key players (e.g. drone makers, software and technology providers) to foster development of low-altitude economy
To streamline/simplify the drone registration process under the Small Unmanned Aircraft Order (Cap. 448G) and conduct pilot programs for drones and eVTOLs in delivery, travel, public safety, and surveillance, integrating them into the Smart City Blueprint

To engage the private sector early in infrastructure planning and financing through the provision of Public-Private Partnerships (PPPs), bond issues, and loan facilities, along with technical and operational expertise to enhance project efficiency

To publish a 5 - 10 year infrastructure plan (including core infrastructure and green and sustainable projects) for greater transparency, establishing Hong Kong as regional centre for infrastructure finance

To leverage multilateral development banks (MDBs), including the Asian Infrastructure Investment Bank (AIIB), and expand the remit of the Hong Kong Investment Corporation to include core infrastructure, thereby playing a key role in de-risking projects and attracting more private capital

To provide tax and fiscal incentives to help enterprises engaging in silver hair technology, health products and care services to develop innovative products
To strengthen tax incentives (e.g. higher basic allowance) to encourage senior employees to stay in the workforce
Offer tax/financial incentives to employers hiring senior employees with modest earnings

To review allowances and deductions levels for individual taxpayers coping with rising living costs

To expand tax deduction scope for health insurance premiums to cover private medical schemes beyond VHIS

Insights Hear from our tax professionals

Jeremy Ngai, PwC South China (incl. Hong Kong SAR) Tax Leader

“We support the Financial Secretary’s call to press ahead with economic development, providing the impetus to accelerate economic growth. Now, more than ever, it is vital that Hong Kong leverages its strategic location within the GBA, and acts as a super-connector between the Chinese Mainland and the rest of the world, supports innovative industries and retains talent to drive the city’s future growth.”

Rex Ho, PwC Asia Pacific Financial Services Tax Leader

“To solidify Hong Kong’s status as a premier international financial centre, the Government should expedite the implementation of the proposed enhancements to preferential tax regimes for investment funds and carried interests. Additionally, consideration should also be given to waiving the buy-side stamp duty on stock trading to invigorate capital market activity and attract more investors. Providing stamp duty exemptions to market intermediaries would further facilitate smoother and more cost-effective transactions, thereby enhancing overall market efficiency and liquidity.

As the Renminbi (RMB) gains prominence in international trade, particularly within the Belt and Road jurisdictions, ASEAN and the Middle East, Hong Kong should further expand its offshore RMB business to drive growth. This includes optimising mutual market access schemes, attracting additional RMB flows to enhance offshore liquidity and diversifying offshore RMB products by introducing innovative RMB financial instruments.”

Agnes Wong, PwC South Private Clients and Family Office Tax Leader

“It is important to create a welcoming environment for international talent. Consideration may be given to establishing a comprehensive one-stop facilitation service that includes streamlining the visa application process, aligning talent with suitable employment opportunities and arranging educational facilities for their children to ensure a smooth transition and integration. Additionally, tax rules should be enhanced to allow a more favourable unilateral tax relief for taxes paid by individuals in tax treaty jurisdictions.

Beyond attracting international talent, it is crucial to address the needs of local talent. Consideration should be given to providing tax deductions to employers to encourage investment in upskilling and reskilling their workforce. This approach would elevate the skill levels of the local workforce, ensuring they can keep pace with the fast-changing business environment.”

“To establish Hong Kong as a premier family office hub, the Government should consider expanding the classes of specified assets eligible for tax concessions to include fine arts and collectibles, which can address the unique needs of family offices. Given that the New Capital Investment Entrant Scheme and the family office tax concession share similar objectives of attracting asset owners to settle in the city and explore its diverse investment opportunities, aligning the qualifying investment lists under these two measures would ease investment decisions for family offices and individuals aspiring to settle in Hong Kong.

Additional measures should be introduced to complement the tax concessions. These include accelerating Hong Kong residency status for principals and immediate family members of eligible family offices, streamlining employment visas for foreign investment professionals and offering tax concessions such as reduced tax rates to eligible family offices.”

“Shipowners and commodity traders are primary users of shipping routes and maritime services, which play a crucial role in this ecosystem. Their presence and operations in Hong Kong can significantly drive the maritime services industry, thereby boosting demand for related financial and professional services. Building a robust commodity trading ecosystem in our city will further solidify Hong Kong’s status as an international financial, shipping and logistic hub. Furthermore, the Government’s proposal to enhance the existing preferential tax regime for the maritime sector is a timely response to the imminent implementation of the global minimum tax in Hong Kong. We strongly recommend accelerating the enactment of the proposed enhancements to the current maritime sector tax concessions to ensure the sector’s continued competitiveness.”

Kenneth Wong, PwC Hong Kong Tax Controversy Services Leader

“To foster innovation and complement the recently implemented patent box regime, it is imperative for the Government to relax intellectual property-related tax rules and extend enhanced tax deductions to cover R&D activities undertaken in the GBA. Moreover, providing grants specifically aimed at product development and preferential corporate tax rates for qualifying companies, such as drone manufacturers and software and technology providers, would significantly support the development of the low-altitude economy. Currently, the Government operates several funding programmes under the Innovation and Technology Fund. Further streamlining the vetting and disbursement process will be conducive to encouraging a vibrant innovation ecosystem in Hong Kong.”

“To bolster Hong Kong’s position as a leading international trade centre, we recommend that the Government offering competitive tax and non-tax financial incentives to attract more multinational enterprises to establish their regional headquarters in Hong Kong. Such strategies are in alignment with Hong Kong’s ambitions to develop a robust headquarter economy, showcasing a clear and forward-looking vision for the future. Hong Kong serves as a pivotal gateway for Chinese investments seeking to expand internationally. Currently, Hong Kong has signed tax treaties with 51 jurisdictions, which presents a substantial opportunity for growth compared to the over 90 treaties that Singapore has established. Negotiations should prioritise significant trading partners and Belt and Road jurisdictions, as expanding this network is crucial for reducing double taxation. This, in turn, will enhance Hong Kong’s status as an international trade centre.”

“To develop the silver economy, the Government should consider providing tax and fiscal incentives to help enterprises in silver hair technology, health products and care services to develop innovative products and services. Tax incentives should also be enhanced to encourage senior employees to remain in the workforce and contribute to the economy. This includes offering tax/financial incentives to employers who hire senior employees with modest earnings, and providing tax benefits to senior employees who choose to stay in the workforce.

Furthermore, the Government can act as a facilitator to foster collaboration among enterprises, research institutes, and medical institutions to develop elderly-focused medical and healthcare products. Organising regular exhibitions for silver hair products can also drive market expansion and increase awareness.”

Hear from our other industry professionals

Albert Wong, PwC Hong Kong Public Sector Consulting Partner

“Enhancing support for new industrialisation in Hong Kong is crucial to the development of Hong Kong as an international I&T centre and commercialisation of R&D outcome. The Government could intensify its efforts by expanding initiatives such as extending the funding scope of the New Industrialisation Funding Scheme to assist manufacturers in upgrading existing production facilities and equipment. Adjusting the funding matching basis would also be beneficial. This approach would facilitate the adoption of Industry 4.0 technologies and the development of modular and agile manufacturing lines, and strengthen the local commercialisation capabilities. Ultimately, it enables companies to offer product personalisation and adapt to the evolving needs of customers.”

Wilson Chow, PwC China’s Artificial Intelligence Leader and PwC’s Global Technology, Media and Telecommunications (TMT) Industry Leader

“AI adoption in public services is essential for streamlining processes, enhancing service design and delivery, and achieving operational efficiency, especially a midst of the budget deficit situation. The Government should lead AI deployment by allocating resources for pilot programmes, such as automated immigration clearance systems using facial recognition in collaboration with the Shenzhen Government. Additionally, cultivating an advanced AI ecosystem by encouraging collaboration between Cyberport, HKSTP, and AI incubators in the GBA can establish Hong Kong as a regional hub for AI start-ups.”

Simon Booker, Government and Infrastructure Partner, Asia Pacific, PwC Hong Kong

“For infrastructure development, engaging the private sector early in planning and financing infrastructure projects is critical. The private sector allows financing of such projects via Public-Private Partnerships (PPP), bond issue and loan facilities, as well as valuable expertise to enhance project efficiency. For strategic planning and financing purposes, publishing a 5 to 10-year infrastructure plan will enhance transparency and attract global investments. For projects with costly private capital, the Government should use multilateral development banks (MDBs) and expand the Hong Kong Investment Corporation’s role to de-risk projects and attract private investments.”