Form BIRSP2 Hong Kong research and development expenditure

Form BIRSP2 Research and Development Expenditure Hong Kong

Form BIRSP2 is a supplementary form filed with a corporation's profits tax return (BIR51). It claims deductions for qualifying research and development (R&D) expenditure under the Inland Revenue Ordinance (Cap. 112). File this form with the Inland Revenue Department (IRD) for any year of assessment where you claim R&D-related tax relief.

Eligible R&D Expenditure

The IRD defines R&D expenditure as costs from systematic, investigative or experimental work performed in Hong Kong to advance knowledge or technology. Eligible costs are directly attributable to R&D activities. These include staff costs for employees engaged in R&D, materials and consumables, payments for third-party R&D services, and costs of acquiring or using intellectual property for R&D. Capital expenditure on machinery or plant used solely for R&D is also eligible.

Expenditure must be incurred wholly and exclusively to produce profits chargeable to tax. The IRD may require proof that your activities meet the R&D definition in section 16B of Cap. 112.

R&D Tax Deduction Rates

Hong Kong provides enhanced deductions for qualifying R&D expenditure. The standard deduction is 100% of eligible expenditure. For expenditure incurred on or after 1 April 2023, a 300% deduction applies to the first HK$2 million of qualifying R&D expenditure each year of assessment. Any excess qualifies for a 200% deduction. These enhanced rates apply to expenditure incurred in Hong Kong.

Claim the deduction in the profits tax computation for the year of assessment the expenditure is incurred. Unused deductions can be carried forward indefinitely against future profits.

BIRSP2 Form Guide

The IRD publishes a guide with detailed instructions for completing Form BIRSP2. The form is structured into several parts. Part A requires the business registration number, name and tax reference number. Part B is a summary of R&D expenditure, where you report total eligible expenditure broken down by category: staff costs, materials, third-party services, capital expenditure. Part C is for the enhanced deduction calculation, where you compute the 300% and 200% deductions based on reported expenditure. Part D is a declaration, which you sign and date to confirm the information is correct.

You must retain supporting documents like contracts, invoices and timesheets for at least seven years after the year of assessment.

Hong Kong Research and Development Form Completion

When completing the form, ensure all figures are consistent with your financial statements and tax computation. First, identify qualifying R&D projects by listing each project and describing the R&D activities undertaken. Next, allocate expenditure to the correct category, ensuring no double-counting. Then, calculate the enhanced deduction by applying the 300% rate to the first HK$2 million and 200% to the excess. Finally, transfer the total deduction into the tax computation (Form IR957 or equivalent).

The IRD may request a certified true copy of your R&D project records. Prepare a summary for each project, including its objectives, methodology and results.

Form BIRSP2 Instructions

Form BIRSP2 instructions are on the IRD website. Entities subject to mandatory electronic filing must submit the form through the Business Tax Portal. Paper filing is accepted for other taxpayers.

Submit the form with the profits tax return (BIR51) for the relevant year of assessment. File a separate BIRSP2 for each year you claim R&D deductions. The IRD may issue a notice requiring additional information or an interview. Submitting the form or providing supporting documents late may result in the deduction being disallowed.

Assessment Year and Compliance

The assessment year for R&D deductions is the year the expenditure is incurred. For example, expenditure for the year ended 31 March 2025 is claimed in the 2024-25 profits tax return. The IRD will assess the claim and may issue a revised assessment if the deduction is allowed.

The IRD has the power to inspect premises and records to verify R&D activities. The department may also refer to the Commissioner of Innovation and Technology to confirm the activities constitute R&D.

Electronic Filing and IXBRL

From the year of assessment 2025-26, relevant entities of in-scope multinational enterprise groups must file profits tax returns electronically via the Business Tax Portal. The BIRSP2 form must be submitted in iXBRL format, with financial statements and tax computation tagged to the IRD's taxonomy.

Electronic filing is voluntary but encouraged for other taxpayers. The IRD aims for full electronic filing by 2030. Filing electronically allows you to upload supporting documents and track your claim's status through the portal.

Supporting Documents

You must retain documents to support a BIRSP2 claim. These include project plans and progress reports, staff timesheets and payroll records, invoices and receipts for materials and third-party services, contracts for R&D services, and capital expenditure records for machinery or plant used in R&D. Also keep a certified true copy of the R&D project summary.

The IRD may request these documents during an audit or investigation. Failure to produce them may result in the deduction being denied.

Conclusion

Form BIRSP2 is the primary mechanism for claiming R&D tax deductions in Hong Kong. Carefully identify qualifying expenditure, complete the form accurately and retain supporting records. The enhanced deduction rates provide a significant incentive for businesses to invest in R&D activities in Hong Kong.