Up Again Hong Kong: Government Relief and Tax


1. Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?

Unlike some other jurisdictions in the Asia Pacific region, such as Australia and Singapore, Hong Kong has not introduced temporary measures to:

  • increase the monetary threshold and time period for companies to respond to a statutory demand; or
  • grant directors temporary relief from personal liability for wrongful/insolvent trading with respect to any debts incurred in the ordinary course of the company’s business during this period of business disruption.

Nevertheless, it is understood that a new corporate rescue regime of “Provisional Supervision” and “Voluntary Arrangement” will be tabled before the Hong Kong Legislative Council during Q3 2020. The precise provisions have not been published. However, it is understood that the rescue regime will allow debtors to apply for a statutory moratorium to give them breathing space to continue operations as they explore the feasibility of implementing a restructuring plan.

2. Is there anything else I should look out for?

Businesses should investigate whether any financial assistance programmes or relief is available from the government. For more information, see the section What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government? (below).


3. What is the position with respect to the applicability of emergency tax measures , including

  1. what they are and apply to;
  2. when they are expected to be phased out on or following a return to business; and
  3. whether any transitional periods are likely to apply.

There are no emergency tax measures for COVID-19 specifically, but the following tax relief measures apply:

  • A reduction in profits tax for the 2019-20 year of assessment by 100% but subject to a ceiling of HKD20,000.
  • A waiver of government rates (property taxes) for non-domestic properties for the year 2020-21 but subject to a ceiling of HKD5,000 per quarter in the first two quarters, and of HKD1,500 per quarter for the remaining two quarters.
  • A waiver of business registration fees for the year 2020-21.
  • A waiver of registration fees for annual returns of companies for two years.

4. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of

  1. payment obligations (and therefore likely pressure on cash flow); and/or
  2. filing of returns?

Deferral of tax filings

2019-20 profits tax returns:

  • Returns will be issued on 4 or 5 May 2020, around a month later than normal.
  • For “N” code companies (i.e. those whose accounting year-end dates falls within 1 April to 30 November 2019), filings are due by 30 June 2020 (around a month later than normal).

Extension of due date:

Tax payment deadlines for salaries tax, personal assessment and profits tax demand notes for the year of assessment of 2018-19 that fall between April to June 2020 are automatically extended by three months.

If taxpayers for salaries tax, personal assessment and profits tax have already settled the first payment in accordance with the demand note for the year of assessment 2018-19, the deadline for the second payment is automatically extended for three months from the date specified on the demand note.

5. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?


6. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?


7. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?


8. Which taxes might be increased to address the financial burden caused by the crisis, for example,

  1. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)
  2. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)


9. Are there other actions that ought to be considered by businesses in your country e.g.

  1. revisit past tax filings to claim carry back of losses;
  2. revise or update preliminary tax assessments;
  3. claim bad debt relief for VAT output tax

The company may consider applying for holding over (i.e. deferring payment) of provisional profit tax.

There is no VAT in Hong Kong.


10. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?

If your business has temporarily closed, there may be a delay between the incurrence of costs to restart your business and the consequent receipt of income. Businesses should consider whether they have sufficient working capital during the interim period. In particular, if you have any remaining availability under any revolving credit facility, note that there will likely be a drawstop on new funding if a Default (or occasionally Event of Default) is continuing.

In terms of assistance packages, businesses (especially SMEs) should consider whether they are eligible for the temporary relief measures introduced by the government and the Hong Kong Monetary Authority (HKMA).

The measures cover three different categories:

  • concessionary loans
  • financial support/grants
  • principal ‘”holidays” and certain fee waivers/reductions by lenders

Concessionary low-interest loans will have a full government-backed guarantee for all applicable SMEs. Applications for these loans is available for six months. The maximum loan amount of any loan is HKD4 million with repayment periods of up to three years. There is an option for applicants to elect for a principal moratorium, under which only interest will be payable in the first six months.

The grants available are targeted at enterprises operating in sectors particularly affected by COVID-19, such as aviation.

The HKMA has required all Authorised Institutions (essentially banks in Hong Kong) to participate in the Pre-approved Principal Payment Holiday Scheme for Corporate Customers, under which banks will defer principal payments falling due between 1 May and 31 October 2020, for a period of three to six months. This deferment applies to SME borrowers (which have, among other things, annual sales turnover of HKD800 million or less) under most bilateral loans. Syndicated loans and loans financing the purchase of shares or other financial assets are expressly excluded. Additionally, individual lenders have introduced certain temporary fee waiver/reductions to assist corporate customers; more information is available on the lenders’ websites.

11. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?

Businesses should consider how a fall in revenue due to the COVID-19 outbreak may have affected their ability to comply with any financial covenants in their finance documentation. Depending on the businesses’ credit history with their lenders, lenders may be receptive to a covenant waiver for the March to May testing dates.

Moving forward, businesses should also consider whether a wavier, or indeed full covenant reset, will be needed for future test dates (and then also consider when would be an appropriate time to try to determine what those re-set covenants should be). Particular considerations include:

  • the decrease in revenue/EBITDA over the period where the business was disrupted;
  • any likely tapered increase in revenue/EBITDA as business operations resume;
  • costs for restarting the business; and
  • payment of any deferred payments (e.g. rental payments, utility charges).

12. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?

Equity cure and margin ratchet provisions are not common in term loan or revolving credit facility documentation. In the case of the former, debtors may rely on an equity injection to maintain financial covenants. For the latter, debtors should note the exact trigger conditions for margin increase.

13. What practicalities do you need to consider in relation to audit requirements?

Businesses should take into account whether social-distancing/work-from-home measures will hamper the audit process, and constantly engage with lenders on the expected timetable for when the audited financial statements can be published.

In this regard, it should be noted that the Hong Kong Stock Exchange has allowed listed companies to delay the publication of certain audited financial statements (which were due by 31 March 2020), provided the companies published a preliminary unaudited results announcement, or management accounts.

14. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?

Debtors should engage with their lenders to explore whether they are amenable to waive or amend the terms of existing finance documentation. The documentation will set out the different lender consent thresholds required – for example, disposal of assets by the borrower may only require majority lender approval but waiving an Event of Default would usually require unanimous lender consent. If the requisite consent is obtained, the changes can be documented through an amendment and restatement agreement or even a temporary “override” if the amendments are temporary.

In the event that negotiations are not successful, debtors may consider implementing a Scheme of Arrangement. A Scheme is a court-sanctioned compromise or other arrangement between the debtor and its creditors. A Scheme must be approved by creditors representing a majority in number and 75% in value of those voting at a Scheme meeting. Once sanctioned by the court, all dissenting creditors will be bound by the terms of the Scheme.

15. Dealing with creditors, including amendments and waivers – Bonds

a. If I can’t comply with the terms of my bond covenants who do I need to notify?

If a default has occurred or is likely to occur, communication with the beneficial owner of the economics of the bonds will often be required through a combination of

  • public announcements filed on the exchange where the bonds are listed and the issuer's website; and
  • with simultaneous notice to the trustee or fiscal agent (as determined by the governing document of the bonds).

A significant proportion of the bonds issued in Hong Kong is made up of high-yield bonds issued by listed companies that are effectively family-controlled. Key default concerns in the near term for such bonds include:

  • inability to file necessary reports (which may include accounting certifications which may not be made);
  • failure to report timely any material developments (if the bond documentation requires such reporting);
  • inability to pay interest or principal; and
  • triggering of change of control provisions (especially when the controlling shareholders have pledged their shares as collateral and the collateral is subjected to enforcement proceedings due to defaults on other financial obligations).

b. If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?

Governing documents for bonds will usually have a detailed waiver and amendment procedure spelled out, and the relevant thresholds for “Holder” consent will be contained in the trust deed or the indenture of the bonds. “Holders” are persons recorded in the register of bonds who maintain securities accounts with the Clearing Systems.

It should be expected that consent from “Holders” (representing a majority of the principal amount outstanding) will be required for amendments to non-economic terms (such as ability to incur additional debt), but that economic terms (maturity, interest rate, interest payment dates currency, and so on) will generally require 75% consent for English law-governed bonds and 90% to 100% consent for New York law-governed bonds.

The first step for the issuer should be to organise a professional team (including the appointment of an information agent) to review the documentation. A decision needs to be made whether a “consent solicitation” will be sufficient or something more involved is necessary – for example, a Scheme.

The objective is to commence quickly a commercial dialogue between the Issuer and the beneficial owners of the economics of the bonds as principal.

c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?

Commonly, it is necessary to appoint an information agent, who will conduct a bondholder identification exercise. Many bonds (whether or not listed on a recognisable exchange) are cleared through one or more of the Clearing Systems, namely Clearstream, Euroclear or DTC. The identity of the ultimate beneficial owner of the economics of the bonds (as principal) is usually not known to the issuer so the purpose of “bondholder ID” process is to reveal that owner (in place of the Holder) as that beneficial owner will be the one who decides whether or not to support any amendment.

16. Is the availability of any return to business funding or relief either (a) conditioned on the use of proceeds for green or social purposes or (b) linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?

Generally no; however, businesses should take note of eligibility criteria and other specific conditions in the government subsidy/grant programmes.