The Patent Box Regime in Hong Kong: A New Advantage for Healthcare Firms

As healthcare companies race to bring cutting-edge therapies, diagnostics, and digital platforms to market, the patent box regime in Hong Kong—offering a 5% concessionary profits tax rate on qualifying IP income—is emerging as a strategic tax advantage.

With the Inland Revenue Department’s updated guidance (May 2025), biotech, medtech, and digital health companies can now structure their innovation activities to unlock significant tax savings—if they understand how to qualify under this regime.

In this guide, you’ll learn:

• How the patent box regime works and what qualifies under it
• A checklist of eligible healthcare innovations
• A practical case study of a Hong Kong MedTech company
• Key structuring strategies to ensure compliance and maximise benefits
• Why the regime matters for VC-backed, IPO-ready, and cross-border healthcare ventures in APAC

Whether you’re a growth-stage startup or a regional healthcare group, this article offers actionable insights to help you optimise your tax position while scaling your IP-driven innovations from Hong Kong.

What’s the Patent Box Regime?

Introduced in 2024 and applicable retrospectively from the 2023/24 assessment year, the regime encourages R&D-driven IP commercialisation by applying a reduced tax rate to income derived from eligible IP created through qualifying R&D activities.

Qualifying IP includes:

• Patents developed in-house or through qualified outsourcing
• Copyrighted software powering digital health platforms
• Income streams such as royalties, licence fees, and embedded IP value in services or products

Tax relief is calculated using the OECD’s nexus approach—only the R&D-linked portion of IP income qualifies for the reduced tax rate, based on an R&D fraction formula.

What Healthcare IP Qualifies? A Quick Checklist

Example Case Study: MedNova Diagnostics Ltd.

The following fictional example outlines a typical MedTech company’s approach to structuring its R&D and IP strategy in Hong Kong to help illustrate how the patent box regime works in practice. 

Refer to the Inland Revenue Department’s published examples here for additional real-world scenarios.

MedNova, a growth-stage Hong Kong MedTech company, is developing an AI-driven platform for detecting cardiovascular risks using wearable data.

Their qualifying activities:

• Conducted 12 months of in-house R&D to create a proprietary algorithm
• Registered software copyright under Hong Kong law
• Commercialised the IP via a B2B SaaS platform for clinics

By applying the patent box regime in Hong Kong:

• 40% of platform income is attributed to the software IP
• Their R&D fraction is 80% (majority in-house)
• Result: 32% of platform income qualifies for the 5% tax rate

MedNova also secured an advance ruling for eligibility, reinforcing compliance and investor trust.

Structuring Around the Patent Box Regime in Hong Kong

To capitalise fully on the tax incentive, healthcare firms must align both operations and accounting:

1. Income Attribution: Use OECD-aligned transfer pricing to justify the IP-derived portion of product/service income.
2. R&D Tracking: Maintain clear, real-time documentation from project inception through deployment.
3. IP Ownership: Evaluate group structures—only the entity earning income from eligible IP can benefit.

These elements are especially crucial for multinationals or cross-border JV structures commonly seen in the biotech and medtech sectors.

Why the Regime Matters for APAC Healthcare Growth

For many mid-sized healthcare ventures expanding across Asia, efficient capital use is critical. The patent box regime in Hong Kong offers:

• Incentives to retain R&D operations locally
• Tax efficiency that improves EBITDA and valuation

Structuring certainty that appeals to VCs, IPO markets, and M&A buyers

Where To Next?

At InCorp Hong Kong, we guide healthcare clients in:

• Identifying IP and R&D activities eligible for the regime
• Structuring IP ownership and licensing across entities
• Navigating advance tax rulings and compliance with IRD documentation standards
• Benchmarking Hong Kong’s regime against Singapore, Australia, and other IP hubs in Asia-Pacific

Our regional expertise helps you align innovation, tax efficiency, and business expansion in one strategic plan.

Are you exploring the patent box regime in Hong Kong for your healthcare innovation? InCorp’s specialists are here to assess your structure, IP assets, and R&D documentation and recommend a roadmap to maximise your benefits.