Impact of Pillar 2 on Hong Kong's Real Estate Sector

Tax Notes International (TNI) published an article titled "The Impact of Pillar 2 on Hong Kong's Real Estate Sector" authored by Deloitte China's Vice Chair and International Tax Partner Patrick Yip and Tax Director Doris Chik on 2nd May 2022.  This article examines how the global anti-base-erosion (GloBE) regime might affect Hong Kong's real estate industry.

Hong Kong-based property companies were able to leverage Hong Kong’s simple and low-tax regime to enhance investors’ returns. However, The Organization for Economic Co-operation and Development (OECD) Pillar 2 – that is, the GloBE regime –  may take away some of Hong Kong’s structural tax edge. Under the GloBE regime, whenever the effective tax rate falls below the minimum rate of 15 percent (assessed jurisdiction by jurisdiction), a top-up tax of the difference between 15 percent and the effective rate will be imposed on the profits arising in that jurisdiction. 

The GloBE rules could create unexpected tax issues and burdens for the real estate sector because the income base on which the minimum tax is calculated is generally the company's accounting profits which may include capital gains that are not subject to tax. In particular, the rules would impact real estate firms that own investment property and owner occupied property in a way that if timely planning and elections are not made, there could be untoward tax consequences that would have been able to be avoided.

If you would like to learn more about this article, please click the attached PDF  to view the full article (English version only). 

For further enquiries, please reach out to the authors below:

Patrick Yip
Vice Chair and International Tax Partner, Deloitte China
Email: patyip@deloitte.com.hk

Doris Chik
Tax Director, Deloitte China
Email: dchik@deloitte.com.hk