Hong Kong Budget Speech Decoded for Startups: What Each Year's Policy Means

The 2025-2026 Hong Kong Budget, delivered by Financial Secretary Paul Chan on 26 February, allocated HKD 1.3 billion in new funding specifically for innovation and technology (I&T) initiatives, a 12% increase from the previous year’s HKD 1.16 billion earmarked for similar programs. This allocation comes at a critical juncture: Hong Kong’s startup ecosystem, which numbered 4,694 startups employing 17,384 people as of the 2024 Start-up Survey by InvestHK, faces a tightening seed-stage funding environment. According to the Hong Kong Venture Capital and Private Equity Association (HKVCA) 2024 Annual Report, seed-stage deal volume in Hong Kong fell 18% year-on-year to 112 deals in 2024. The Budget’s emphasis on the “Development of I&T Ecosystem” — specifically the HKD 700 million allocation for the “Smart City Blueprint 2.0” and the HKD 600 million for the “Innovation and Technology Venture Fund (ITVF)” — signals a deliberate pivot from generalised support to targeted capital injection at the pre-seed and seed stages. For founders navigating the gap between a proof-of-concept and a Series A, the question is no longer whether government support exists, but how to precisely align their capital strategy with the specific policy instruments activated over the past five Budget cycles.

The Pre-Seed Lifeline: The 2024-2025 Budget’s “Smart City Blueprint 2.0” and the HKD 700 Million Allocation

The 2024-2025 Budget introduced the “Smart City Blueprint 2.0” with a dedicated HKD 700 million allocation, marking the first time a Hong Kong Budget explicitly ring-fenced funds for early-stage urban technology ventures. This is not a general technology grant; it is a procurement-linked mechanism. The Budget states the funds are for “pilot projects and proof-of-concepts” within government departments, effectively creating a government-as-first-customer model for startups. For a seed-stage founder, this is a direct revenue pathway.

The “Government as First Customer” Model in Practice

The HKD 700 million is disbursed through the “Innovation and Technology Fund (ITF)” under the “Technology Voucher Programme (TVP)” and the “Public Sector Trial Scheme (PSTS)” . The PSTS, specifically, allows startups to deploy their technology in a live government environment. Data from the Innovation and Technology Commission (ITC) shows that in 2024, 47% of PSTS-funded projects were from companies with less than HKD 5 million in annual revenue, and the average project grant was HKD 1.2 million. The 2025 Budget expands the PSTS scope to include the “Smart Mobility” and “Smart Environment” pillars, directly benefiting startups in logistics tech (e.g., route optimisation for the Transport Department) and waste management tech (e.g., sensor-based bin monitoring for the Environmental Protection Department). Founders should file applications under the “GreenTech” and “LogiTech” categories, which received 34% of PSTS funding in 2024.

The HKD 600 Million Innovation and Technology Venture Fund (ITVF) Co-Investment Mechanism

The 2025 Budget’s HKD 600 million injection into the Innovation and Technology Venture Fund (ITVF) is a structural change, not just a top-up. The ITVF, established in 2017, operates as a co-investment fund where the government matches private capital at a 1:1 ratio, capped at HKD 20 million per project. The 2025 Budget lowers the minimum private co-investment threshold from HKD 10 million to HKD 5 million, directly targeting the seed-stage gap. The Hong Kong Science and Technology Parks Corporation (HKSTP) , which administers the ITVF, reported in its 2024 Annual Report that the average ITVF investment round was HKD 18 million, with the government contributing HKD 9 million. The new threshold means a startup can now secure a HKD 10 million total round (HKD 5 million from private, HKD 5 million from ITVF) at a valuation that is more accessible for seed-stage companies. The key eligibility criterion is that the startup must be a “technology company” as defined by the ITC, meaning it must have a demonstrable R&D expenditure of at least 15% of total operating costs. Founders must prepare a detailed “Technology Readiness Level (TRL)” assessment, as the ITVF requires a minimum TRL of 4 (laboratory validation) to qualify.

The “HKEX Chapter 18C” and the 2023 Budget’s “Specialist Technology” Listing Pathway

The 2023 Budget, delivered in February 2023, was the first to explicitly link startup funding to a public exit pathway. The HKEX Listing Rules Chapter 18C — introduced in March 2023 — created a new listing regime for “Specialist Technology Companies” (STCs). This is not a general tech listing; it is a carve-out for companies in five specific sectors: next-generation information technology, advanced hardware, advanced materials, energy and environmental technologies, and new food and agriculture technologies.

The Chapter 18C Pre-IPO Funding Ripple Effect

The 2023 Budget allocated HKD 5 billion to the “Strategic Tech Fund” , a government-backed vehicle that invests in pre-IPO rounds of companies targeting a Chapter 18C listing. The fund’s mandate, per the Financial Services and the Treasury Bureau (FSTB) circular of March 2023, is to invest a minimum of HKD 50 million per company, with a maximum of HKD 200 million. This has created a direct funding pipeline: a seed-stage startup in, for example, advanced materials, can now pitch to the Strategic Tech Fund for a pre-IPO round, but only if it can demonstrate a clear path to a Chapter 18C listing within 24 months. The SFC Code of Conduct for Persons Licensed by or Registered with the SFC (Chapter 571) requires that sponsors for a Chapter 18C listing must have completed at least two IPOs in the preceding 24 months, a rule that has concentrated sponsor activity among the top 5 investment banks. For seed-stage founders, this means building a cap table that includes at least one of these approved sponsors as an investor is now a de facto requirement for the Chapter 18C exit.

The “De-SPAC” Alternative: The 2022 Budget’s SPAC Regime

The 2022 Budget introduced the HKEX SPAC (Special Purpose Acquisition Company) regime , which became effective on 1 January 2022. The regime requires a SPAC to have a minimum market capitalisation of HKD 1 billion at the time of listing, and the de-SPAC transaction must result in a successor company with a fair market value of at least HKD 2 billion. This is not a viable exit for most seed-stage startups, but it creates a secondary market for later-stage investors. The 2025 Budget did not amend the SPAC rules, but the HKEX Consultation Paper on the Review of the Listing Regime (November 2024) proposed reducing the minimum de-SPAC value to HKD 1.5 billion for companies in the Chapter 18C sectors. If enacted, this would make the SPAC route more accessible for startups that have raised a Series B of at least HKD 100 million. The 2022 Budget also allocated HKD 1 billion to the “Greater Bay Area (GBA) Venture Capital Fund” , which co-invests with Hong Kong-based VCs in GBA startups. Data from the Hong Kong Monetary Authority (HKMA) shows that the GBA Venture Capital Fund has invested HKD 320 million across 14 deals as of December 2024, with an average ticket size of HKD 22.8 million.

The “BVI” and “Cayman” Structure: The 2021 Budget’s Tax Incentive for Fund Domiciliation

The 2021 Budget introduced the “Unified Fund Exemption” under the Inland Revenue Ordinance (IRO) Section 20AC , which exempts qualifying funds from profits tax on transactions in “qualifying assets” — including shares in private companies. This exemption is domicile-agnostic, meaning a fund incorporated in the Cayman Islands or the British Virgin Islands (BVI) can operate from Hong Kong without incurring Hong Kong profits tax, provided it meets the “central management and control” test. The 2025 Budget extended this exemption to cover “carried interest” received by fund managers, subject to the SFC’s Code on Real Estate Investment Trusts and the HKMA’s Capital Investment Entrant Scheme (CIES) requirements.

The “BVI Business Company” as a Seed-Stage Vehicle

For seed-stage founders, the 2021 Budget’s tax clarity has made the BVI Business Company (BC) the preferred incorporation jurisdiction for the holding company. The BVI Business Companies Act, 2004 (as amended) allows for a single director and a single shareholder, and the BVI Financial Services Commission (FSC) does not require public filing of beneficial ownership. The 2025 Budget does not change this, but the Hong Kong Companies Registry now requires all Hong Kong-incorporated companies to file a “Significant Controllers Register (SCR)” under the Companies Ordinance (Cap. 622) . This creates a compliance asymmetry: a BVI-incorporated holding company, with a Hong Kong subsidiary as the operating entity, avoids the SCR filing requirement at the holding level. The HKEX Listing Decision LD143-2023 confirms that a BVI-incorporated company can list on the Main Board under Chapter 8 of the Listing Rules, provided it has a Hong Kong branch register. For seed-stage founders, the optimal structure is a BVI holding company with a Hong Kong subsidiary that applies for the “Technology Voucher Programme (TVP)” grants, as the TVP requires the applicant to be a Hong Kong-registered company.

The “CIES” and the “Family Office” Capital: The 2024-2025 Budget’s Wealth Management Link

The 2024 Budget expanded the Capital Investment Entrant Scheme (CIES) , originally launched in 2003 and suspended in 2015, then relaunched in March 2024. The scheme allows investors who commit HKD 30 million in permissible assets — including HKD 7 million in “qualifying investment” in “innovation and technology venture capital funds” — to obtain Hong Kong residency. The 2025 Budget increased the permissible investment in I&T venture capital funds from HKD 7 million to HKD 10 million, and expanded the definition of “qualifying investment” to include “direct investments in unlisted Hong Kong startups” . This is a direct capital injection into the seed-stage ecosystem. The HKMA Circular on the Capital Investment Entrant Scheme (March 2025) specifies that the direct investment must be in a company that is a “qualifying startup” as defined by the Innovation and Technology Commission (ITC) , meaning it must have a valid “Technology Business Incubation Programme (TBIP)” or “Incu-Tech” tenancy at HKSTP or the Hong Kong Cyberport Management Company Limited .

The “Family Office” as a Seed-Stage LP

The 2025 Budget also introduced a “Family Office Concessionary Tax Regime” under the IRO Section 20AC , which offers a 0% profits tax rate for single-family offices (SFOs) with at least HKD 240 million in assets under management (AUM). The regime requires the SFO to invest at least 5% of its AUM (HKD 12 million) in “qualifying I&T assets” , which includes seed-stage startups. The SFC’s Guidelines on the Regulation of Family Offices (February 2025) require that the SFO’s investment in a startup must be a “direct equity investment” , not a convertible note, to qualify for the tax concession. This has created a new class of seed-stage investors: family offices that are tax-motivated to deploy HKD 12 million into early-stage companies. For a seed-stage founder, pitching to a family office now requires demonstrating that the investment qualifies under the IRO Section 20AC framework, which means the startup must be a “Hong Kong resident company” as defined by the Companies Ordinance (Cap. 622) and must have a “principal place of business” in Hong Kong.

Actionable Takeaways for Seed-Stage Founders

1. File for the Public Sector Trial Scheme (PSTS) immediately : The 2025 Budget’s HKD 700 million allocation for Smart City Blueprint 2.0 prioritises “Smart Mobility” and “Smart Environment” projects; applications must demonstrate a Technology Readiness Level (TRL) of at least 4 and a clear government department use case.

2. Restructure your cap table to include a Chapter 18C-approved sponsor : The 2023 Budget’s Strategic Tech Fund requires a minimum HKD 50 million investment, but the prerequisite is a sponsor relationship with one of the top 5 investment banks approved by the SFC for Chapter 18C listings.

3. Incorporate your holding company in the BVI with a Hong Kong operating subsidiary : The 2021 Budget’s Unified Fund Exemption and the 2025 Budget’s carried interest extension make this the most tax-efficient structure, while avoiding the Hong Kong Significant Controllers Register filing at the holding level.

4. Target family offices that qualify for the Family Office Concessionary Tax Regime : The 2025 Budget requires a minimum HKD 12 million direct equity investment in a Hong Kong-resident startup; family offices will be actively seeking deals that meet the IRO Section 20AC criteria.

5. Apply for Incu-Tech or TBIP tenancy at HKSTP or Cyberport : The 2025 Budget’s expansion of the CIES now allows direct investment in unlisted Hong Kong startups, but only if the startup holds a valid incubation programme tenancy — a prerequisite that will become a standard due diligence item for CIES-linked capital.