Form BIRS3 Expenditure on Research and Development
Guide to claiming tax deductions for research and development expenditure on Form BIRS3 in Hong Kong.
BIRS3 at a glance
- Official title
- Expenditure on research and development
- Issued by
- Inland Revenue Department
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Form BIRS3 Expenditure on Research and Development
File Form BIRS3 with your Profits Tax Return (BIR51) to claim deductions for qualifying research and development activities. This supplementary form reports eligible R&D expenditure and calculates the enhanced tax deduction, the super deduction, under the Inland Revenue Ordinance (Cap. 112). The Inland Revenue Department requires this form to substantiate any claim for R&D-related tax relief.
Eligibility Criteria for R&D Deductions
Your research and development activities must meet the definition under section 16B of the Inland Revenue Ordinance (Cap. 112) to claim a deduction on Form BIRS3. Qualifying R&D activities advance knowledge or technology in a field of science or technology. This includes experimental development for new or improved products, processes or services.
The expenditure must be incurred in the production of chargeable profits. You may conduct the R&D in-house or contract it out, but you must bear the economic cost. Capital expenditure, such as acquiring land or buildings, does not qualify. The Inland Revenue Department will examine whether the activities are systematic, investigative and experimental. They must be distinct from routine business improvements or market research.
BIRS3 R&D Tax Deduction Hong Kong
Hong Kong provides a super deduction for qualifying R&D expenditure, more generous than standard business expense deductions. For the year of assessment 2025-26 and subsequent years, the first HK$2 million of qualifying R&D expenditure attracts a 300% tax deduction. This is a 200% super deduction on top of the 100% base deduction. Any qualifying expenditure exceeding HK$2 million qualifies for a 200% deduction, a 100% super deduction on top of the base.
Calculate the enhanced deduction on the tax computation accompanying the Profits Tax Return. Form BIRS3 provides the breakdown of qualifying expenditure and the super deduction calculation. Clearly separate qualifying R&D expenditure from non-qualifying expenditure on the form.
Form BIRS3 Research Development Claim
When completing Form BIRS3, provide detailed information on the nature of the R&D activities undertaken during the basis period. The form requires you to specify the total amount of qualifying R&D expenditure incurred. You must also provide a breakdown by category of expenditure, such as staff costs, consumables and subcontractor costs.
State whether the R&D was conducted in-house or contracted out. Identify the basis period to which the expenditure relates and include the calculation of the enhanced deduction claimed. Support the claim with a contemporaneous record of the R&D activities, including project plans, progress reports and financial records. The Inland Revenue Department may request additional documentation during a tax audit to verify the claim.
Inland Revenue BIRS3 Guide
The Inland Revenue Department publishes a guide with detailed instructions for completing Form BIRS3. It defines qualifying R&D expenditure, explains the super deduction calculation and outlines documentation requirements. Refer to the IRD website guide before filing.
Form BIRS3 must be filed electronically through the Business Tax Portal if you are required to file the Profits Tax Return electronically. From the year of assessment 2025-26, relevant entities of in-scope multinational enterprise groups must file electronically. Financial statements and tax computations must be tagged in iXBRL format. The IRD intends to reach full electronic filing by 2030.
Qualifying Expenditure Categories
Form BIRS3 requires you to report qualifying expenditure in specific categories. The Inland Revenue Ordinance (Cap. 112) defines qualifying R&D expenditure as staff costs of employees directly engaged in R&D activities. It also includes consumable materials used in R&D and payments to subcontractors for R&D services.
Other qualifying categories are costs of computer software used primarily for R&D and utility costs directly attributable to R&D activities. Any other revenue expenditure directly related to R&D also qualifies. Capital expenditure, such as the purchase of plant and machinery used for R&D, does not qualify for the super deduction. It may be eligible for capital allowances under separate provisions. Report only revenue expenditure in Form BIRS3.
R&D Expenditure Tax Form Completion
Complete the R&D expenditure tax form accurately and submit it with the Profits Tax Return (BIR51). The form includes a tax computation section to calculate the enhanced deduction. Enter the total qualifying R&D expenditure in the relevant box. Apply the super deduction percentage: 300% for the first HK$2 million, 200% for the excess. Calculate the total deduction claimed and include it in the tax computation accompanying the Profits Tax Return.
The Inland Revenue Department may reject a claim if the form is incomplete or supporting documentation is insufficient. Retain all records relating to the R&D claim for at least seven years after the end of the year of assessment.
Supporting Documentation Requirements
You must maintain supporting documentation for any claim made on Form BIRS3. The documentation must demonstrate the activities constitute research and development as defined by the Inland Revenue Ordinance (Cap. 112). Acceptable documentation includes project proposals, feasibility studies, technical reports and progress updates.
Keep records of staff time allocated to R&D projects and invoices and receipts for R&D-related expenditure. Contracts with subcontractors for R&D services are required. Patent applications or other intellectual property filings resulting from the R&D also serve as support. The IRD may conduct a field audit to verify the claim. If you cannot produce adequate documentation, the deduction may be disallowed and penalties may apply.
Interaction with the Innovation and Technology Fund
Expenditure funded by the Innovation and Technology Fund or other government grants does not qualify for the super deduction on Form BIRS3. Exclude any R&D expenditure that has been reimbursed or subsidised by the government. Only the net expenditure you bear qualifies for the enhanced deduction.
If you receive a grant after filing the claim, notify the IRD and adjust the claim accordingly. Failure to do so may result in an understatement of profits and potential penalties.
Electronic Filing via the Business Tax Portal
File Form BIRS3 through the Business Tax Portal if you are required to file the Profits Tax Return electronically. The portal accepts the form in iXBRL format, allowing the IRD to process the data automatically. If you are not required to file electronically, you may submit a paper version of the form.
The Inland Revenue Department recommends all taxpayers use the electronic filing channel to reduce processing times and minimise errors. The Business Tax Portal provides validation checks to identify incomplete or inconsistent entries before submission.
How to fill out Form BIRS3
Page one of the official form. Every field named below appears on it in the same order.
Part 1 - Particulars of the Person
Field ‘Particulars of the Person’ Enter the full name of the business, individual, or partnership that incurred the expenditure. This should match the name registered with the Inland Revenue Department (IRD) for the relevant year of assessment.
Field ‘Business Registration No.’ Enter the 8-digit business registration number exactly as shown on the Business Registration Certificate. Do not include letters or hyphens.
Field ‘Year of Assessment’ Enter the year of assessment for which the expenditure is claimed, for example “2023/24”.
Part 2 - Type of Research and Development (R&D)
Field ‘2. Type of Research and Development’ Tick one box only to indicate the nature of the R&D: - “Basic research”: experimental or theoretical work undertaken primarily to acquire new knowledge without a specific practical application. - “Applied research”: original investigation to gain new knowledge directed primarily towards a specific practical aim. - “Experimental development”: systematic work using existing knowledge to produce new or improved materials, devices, products, processes, systems or services.
Part 3 - Total Qualifying Expenditure
Field ‘3. Total qualifying expenditure’ Enter the total amount of qualifying R&D expenditure for the year. Qualifying expenditure includes: - Staff costs (salaries, wages, bonuses, employer’s MPF/retirement scheme contributions) for R&D staff. - Consumables (materials, supplies, utilities) directly used in R&D. - Software, data, and intellectual property licences that are integral to the R&D. - Payments to third parties to carry out R&D on the claimant’s behalf (must be claimed separately under paragraph 3 of the explanatory notes).
Common mistake: Do not include capital expenditure (e.g. purchase of machinery, buildings) unless it is specifically treated as qualifying under section 16G of the Inland Revenue Ordinance. Also, payments to a connected person that are not at arm’s length may be disallowed.
Continuation sheet: If the expenditure covers more than one type of R&D, or if you need to split amounts by project, attach a separate schedule. Use the form’s own continuation sheet (BIRS3/S) if available.
Part 4 - Declaration
Signatory: The person or company officer who signs must be: - For a sole proprietor: the individual. - For a partnership: a partner. - For a company: a director, the secretary, or an authorised representative (e.g. a tax representative with a power of attorney).
Date: The date of signing. This must be on or before the filing deadline for the relevant year of assessment (for Profits Tax returns, usually within one month of the issue date of the return, unless an extension has been granted).
Important: The signatory must also complete and sign the Profits Tax Return (Form BIR51, BIR52 or BIR54) to which this BIRS3 is attached. The BIRS3 cannot be lodged standalone.
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