Hong Kong taxes company profits at 16.5%, and it only taxes the profits that come from doing business in Hong Kong. That is the main reason so many foreign groups hold assets or run their billing through a Hong Kong company.
Most companies end up paying less, though. The first HKD 2 million of profit is taxed at half the rate, and money earned outside Hong Kong may not be taxed here at all.
In this guide, we'll explore the key aspects of Hong Kong's single and two-tiered corporate tax and discuss the key profit tax exemptions that businesses can benefit from.
Hong Kong Profits Tax Rate
Hong Kong calls its corporate income tax "profits tax." It applies to profits that arise in Hong Kong from a trade, profession, or business. The rate comes in two forms, a standard single-tier rate and a lower two-tiered rate.
Two-Tiered Rate
The two-tiered rate has been in place since the 2018/19 tax year, and it cuts the rate in half on your first slice of profit. A company pays 8.25% on its first HKD 2 million of assessable profits and then 16.5% on anything above that. For an unincorporated business, the first HKD 2 million is taxed at 7.5% and the rest at 15%.
| Assessable profit | Companies | Unincorporated businesses |
|---|---|---|
| First HKD 2 million | 8.25% | 7.5% |
| Above HKD 2 million | 16.5% | 15% |
The two-tiered system is automatically applicable to all corporations and unincorporated businesses in Hong Kong, except for those that meet specific exclusion criteria:
- Entities with connected entities, where only one can be nominated per year to benefit from the reduced rates.
- Businesses that already enjoy other tax concessions, including parts of insurance, aircraft leasing, and shipping.
A quick example shows what the lower rate is worth. Say a company earns HKD 5 million in assessable profits. It pays 8.25% on the first HKD 2 million, which comes to HKD 165,000. The remaining HKD 3 million is taxed at 16.5%, or HKD 495,000. So the total bill is HKD 660,000. At a flat 16.5% the same company would pay HKD 825,000, so the two-tiered rate saves it HKD 165,000 for the year.
Standard Rate
The standard rate is 16.5% for companies. Unincorporated businesses, such as sole proprietorships and partnerships, pay 15%. This rate has stayed the same for years, and the 2025/26 Budget left it unchanged.
The government often adds a one-off profits tax rebate in its annual Budget, so it is worth checking what relief applies in the current year. In the 2025/26 year, for example, it waived 100% of profits tax up to a cap of HKD 3,000 per company.
These rebates are usually small rather than something to plan around, and your accountant applies whatever is on offer for the year.
What Hong Kong Does Not Tax
A lot of Hong Kong's appeal comes from the taxes it simply doesn't charge.
- There is no capital gains tax, so profit on selling an asset held on capital account is not taxed.
- Dividends are not taxed when a company receives them. When a Hong Kong company pays dividends out, there is no withholding tax either, whether the shareholder is local or overseas.
- Interest paid to non-residents carries no withholding tax.
- There is no VAT, GST, or sales tax.
- There is no estate duty.
Royalties are the one cross-border payment that does get taxed at source. Next section covers this in detail.
Withholding Tax on Royalties
When a Hong Kong business pays a royalty to a non-resident for using intellectual property in Hong Kong, that payment is treated as Hong Kong income and taxed at source.
For a non-resident company, the effective rate under the two-tiered regime is 2.475% on the first HKD 6.67 million of royalties and 4.95% on anything above that.
For a non-resident individual, the rates are 2.25% and 4.5%.
The rate rises to the full 16.5% for a company where the two parties are related and the intellectual property was once owned by someone doing business in Hong Kong. However, a tax treaty between Hong Kong and the recipient's home country can lower these rates. If the recipient is based in a country which has DTA with Hong Kong, you can benefit from that.
Do You Pay Hong Kong Tax on Foreign Income?
Hong Kong only taxes profit that is earned in Hong Kong. So if your company makes money from work actually done somewhere else, that income can be free of Hong Kong tax, even though the company is registered here. This is what people mean by an offshore claim or offshore company.
Please note that the Inland Revenue Department checks these claims closely, so you need to be able to show the income really was earned abroad.
It is advisable to keep records of everything from contracts and invoices to emails, and even records of where the key decisions were made. This helps to prove your offshore claim and keep your foreign-earned income tax free.
When Foreign Income Becomes Taxable Under FSIE Rules
Since 1 January 2023, Hong Kong's Foreign-Source Income Exemption (FSIE) rules treat some foreign income as taxable when a group company brings it into Hong Kong, unless that company can show it has real substance here.
These rules cover four kinds of income that move easily across borders
- Interest
- Dividends
- Gains from selling assets (Changed from sale of shares to selling almost any asset under Taxation on Foreign-sourced Disposal Gains Ordinance 2023)
- Income from intellectual property
To keep this income tax-free, a group company usually has to meet one of these conditions:
- Real presence in Hong Kong. Enough staff and office space here to back up the activity. This covers interest, dividends, and most asset sales.
- Its own R&D. For income from intellectual property, the exempt share is tied to how much of the research the company did itself.
- A genuine shareholding. Dividends and gains on selling shares can stay exempt if the Hong Kong company has held at least 5% of the other company for 12 months or more, and the anti-abuse rules are met.
For most ordinary trading companies, none of this changes anything. If you run a single, standalone company with genuine offshore income, these rules generally will not apply to you.
However, if your Hong Kong company holds shares or collects interest and IP income from abroad, this becomes crucial in determining how much tax you will pay.
Lower Rates for Shipping, Funds, and Other Industries
Some activities are taxed at a reduced rate, or fully relieved, instead of the standard 16.5%. This applies to qualifying shipping, aircraft and ship leasing, reinsurance and captive insurance, corporate treasury centres, and some funds and family investment vehicles.
Each of these has its own eligibility rules, and most now ask for real substance in Hong Kong. If your business sits in one of these areas, our consultants can help you determine whether you qualify for the lower rate.
Deductions and Allowances That Lower Your Tax Bill
Ordinary business expenses that you incur to earn your profits are deductible in the normal way. On top of that, several allowances let you deduct more, or deduct sooner.
- Plant and machinery: A 60% initial allowance on the cost in the year you buy it, plus an annual allowance of 10%, 20%, or 30% depending on the asset.
- Manufacturing plant, computer hardware, and software: Deductible in full in the year the cost is incurred.
- Industrial buildings: A 20% initial allowance on construction cost, then 4% a year.
- Commercial buildings: A 4% annual allowance on construction cost.
- Building refurbishment: Renovating commercial premises is deductible over five years
- Environmental protection: Machinery and installations qualify for full or accelerated deduction, and environment-friendly vehicles for a full deduction in the year of purchase.
- Research and development: Qualifying R&D gets an enhanced deduction. The first HKD 2 million of qualifying spend is deductible at 300%, and anything above that at 200%.
- Charitable donations: Approved donations are deductible where they add up to at least HKD 100 and do not exceed 35% of your assessable profits.
In addition to these, if a company makes a loss, it can carry that loss forward with no time limit and set it against future profits.
However, Hong Kong does not let you carry losses back to earlier years or share them between group companies. Also, there is no combined group return.
A 5% Tax Rate on Intellectual Property (Patent Box)
Hong Kong brought in a patent box in July 2024, backdated to the 2023/24 tax year. Under it, qualifying profit from eligible intellectual property is taxed at 5% instead of 16.5%.
Eligible intellectual property means patents, copyrighted software, and plant-variety rights. The share of income that gets the 5% rate is worked out using the nexus approach set by the OECD, which links the benefit to the research and development the company did itself. Patents and plant-variety rights also need to be registered locally once a 24-month transition period ends. For a company that develops its own technology in Hong Kong and licenses it out, the patent box can cut the rate on that income by more than two thirds.
Tax Filing Deadline and Process in Hong Kong
Hong Kong's tax year starts on 1 April and ends the following 31 March. The Inland Revenue Department sends out profits tax returns on the first working day of April.
Once you receive a return, you technically have one month to file it, though in practice most companies get longer. The Block Extension Scheme pushes the deadline back based on when your company closes its accounts, so a business with a 31 December year-end usually has until the middle of August the following year.
A new company is treated a little differently. Its first return normally arrives around 18 months after the company is set up, and that first one comes with three months to file instead of one. The regular yearly cycle applies after that.
Even a dormant company has to file once it receives a return.
Payment then works on a provisional basis. The IRD estimates next year's tax from the year it has just assessed and bills it in advance, then credits that payment against your final tax once the real figure is known. So it brings your payment forward rather than adding to your bill.
It is also recommended to keep your business records for at least seven years, because the IRD can go back and check them.
Working with Emerhub on Hong Kong Tax
Our Hong Kong accountants run the full profits tax cycle for you. That covers the annual audit, the tax computation, the return itself, and the provisional tax. Furthermore, where your structure supports it, we prepare offshore claims and set out your FSIE substance position.
If you are setting up a new company, we line up the year-end date, tax registration, and first-return timing during incorporation, so your filing calendar is right from the start.
Fill out the form below to talk to our Hong Kong team.
Frequently asked questions
What is the corporate tax rate in Hong Kong?
The standard rate is 16.5% for companies and 15% for unincorporated businesses. Under the two-tiered rate, a company pays only 8.25% on its first HKD 2 million of assessable profits, and an unincorporated business pays 7.5%, before the standard rate applies to the rest.
Does Hong Kong tax foreign income?
Not if the income actually arises outside Hong Kong, because Hong Kong taxes on source. The exception is the FSIE regime. Since 2023 it can tax foreign interest, dividends, asset-sale gains, and IP income when a company in a multinational group brings them into Hong Kong without passing the substance, nexus, or participation test. A standalone company with real offshore trading income is generally not affected.
Is there capital gains tax or VAT in Hong Kong?
No. Hong Kong has no capital gains tax, no VAT or sales tax, no withholding tax on dividends or interest paid abroad, and no estate duty. Royalties paid to non-residents are the main cross-border payment that is taxed at source.
How does the two-tiered profits tax rate work?
The two-tiered tax rate halves the rate on your first HKD 2 million of assessable profits. A company is charged 8.25% instead of 16.5% on that slice, which is worth up to HKD 165,000 a year. Where several companies are connected, only one of them can use the lower rate in a given year.
When does a Hong Kong company file its profits tax return?
Returns go out on the first working day of April and are due within one month, though the Block Extension Scheme usually gives more time based on your year-end. A new company gets its first return about 18 months after it is set up and has three months to file it.