Hong Kong offers tax concessions for businesses developing technology, managing investments, coordinating group finances and operating in several specialist industries. These incentives can reduce tax on business profits or increase the deductions available for spending on research and equipment.
Foreign-owned businesses qualify on the same terms as locally owned businesses. The opportunity depends on what your company does, the income it earns and whether its operations meet the requirements of the particular concession.
In this article, we will walk you through Hong Kong’s main tax incentives, the businesses they suit and how to claim them. We will also explain how foreign-income rules and the global minimum tax affect the benefits.
Hong Kong Tax Incentives by Business Activity
Start with your company’s activities and planned expenditure. General trading and service businesses have different opportunities from investment vehicles, technology developers and specialist leasing companies.
| Business activity | Incentive to investigate | Main benefit |
|---|---|---|
| General trading or services | Two-tiered profits tax rates | Reduced rate on the first HK$2 million of assessable profits |
| Research and development | Enhanced R&D deduction | Deduction of up to 300% on qualifying expenditure |
| Software development or patented technology | Patent box | 5% tax on the qualifying portion of eligible profits |
| Group financing and cash management | Corporate treasury center concession | 8.25% on covered treasury profits |
| Investment funds | Unified fund exemption | Exemption for profits from covered transactions |
| Family investments | Family-owned investment holding vehicle concession | 0% on qualifying investment profits |
| Investment management rewards | Carried interest concession | Profits tax and salaries tax concessions |
| Aircraft leasing | Aircraft leasing concession | 8.25% on covered profits, with acquisition-cost deductions under the revised regime |
| Ship leasing and maritime services | Shipping concessions | 0% or 8.25%, depending on the activity |
General Tax Benefits for Hong Kong Businesses
Two-tiered profits tax rates
Eligible corporations pay 8.25% on their first HK$2 million of assessable profits and 16.5% on the remainder. Unincorporated businesses have corresponding rates of 7.5% and 15%.
| Business type | First HK$2 million | Profits above HK$2 million |
|---|---|---|
| Corporations | 8.25% | 16.5% |
| Unincorporated businesses | 7.5% | 15% |
For example, a company using the two-tiered rates on HK$3 million of assessable profits pays HK$330,000 before any separate tax reduction. Applying 16.5% to the entire amount would produce a bill of HK$495,000.
Only one entity within a connected group can use the two-tiered rates for a year of assessment. Restrictions also apply to businesses using certain concessionary regimes, so the lower first-tier rate cannot be assumed to apply alongside every other incentive.
One-off profits tax reduction for 2025/26
The 2026–27 Budget introduced a 100% reduction of final profits tax for the year of assessment 2025/26, capped at HK$3,000 per case. The legislation passed on 13 May 2026, and the Inland Revenue Department (IRD) applies the reduction through the assessment process.
There is no separate application for the reduction. Provisional tax remains payable on time, and the reduction is not a continuing exemption for future years.
No VAT, GST or withholding tax on dividends and interest
Hong Kong has no value-added tax or goods and services tax. It also does not impose withholding tax on dividends or interest paid to non-residents.
Certain royalty payments to non-residents create Hong Kong tax obligations, depending on the statutory conditions. Our explanation of the Hong Kong corporate tax rate and exemptions covers the general tax framework.
Hong Kong does not impose a separate capital gains tax, but trading gains may be taxable. Foreign-sourced disposal gains received by multinational enterprise entities also need to be assessed under the foreign-income rules.
Deductions and Allowances That Reduce Taxable Profits
Deductions reduce the profits on which tax is calculated. Some expenditure receives an immediate deduction, while other assets receive allowances spread over time.
| Expenditure | Main treatment |
|---|---|
| Qualifying Type B R&D expenditure | 300% deduction on the first HK$2 million and 200% on the remainder |
| Prescribed manufacturing equipment and qualifying computer hardware and software | 100% deduction in the year the expenditure is incurred |
| Other qualifying plant and machinery | 60% initial allowance and annual allowances at 10%, 20% or 30% on reducing value |
| Qualifying environmental protection machinery, installations and environment-friendly vehicles | 100% deduction in the year the expenditure is incurred |
| Qualifying industrial building construction expenditure | 20% initial allowance and 4% annual allowance |
| Approved charitable donations | Aggregate donations of at least HK$100, deductible up to 35% of adjusted assessable profits before the donation deduction |
The asset’s classification and use determine which treatment applies. Keep purchase records and evidence of business use so that the deduction or allowance can be supported in the tax computation.
Enhanced research and development deductions
The enhanced deduction covers qualifying Type B expenditure, including eligible in-house R&D costs and payments to designated local research institutions. Other research-related expenditure may receive a normal 100% deduction instead.
A company incurring HK$1 million of Type B expenditure can deduct HK$3 million when calculating taxable profits. The benefit is a larger tax deduction, rather than a cash payment or reimbursement of the research cost.
Keep project records, staff cost allocations and expenditure evidence as the work progresses. These establish the research activity and the costs attributable to it.
Hong Kong’s Patent Box: 5% Tax on Eligible IP Profits
The patent box provides a 5% tax rate on the qualifying portion of profits derived from eligible intellectual property. It applies from the year of assessment 2023/24 and covers:
- Eligible patents and patent applications
- Eligible plant variety rights and applications
- Copyright subsisting in software
The benefit extends beyond licensing royalties. Covered income can include disposal income and the portion of product or service income attributable to the intellectual property.
How the qualifying portion is calculated
The concession follows a nexus formula linking profits to qualifying R&D expenditure. That expenditure can include the company’s own research, research outsourced to non-associated parties and certain research performed in Hong Kong by associated Hong Kong-resident parties.
Acquisition expenditure and other non-qualifying costs affect the calculation. Buying a patent without supporting R&D expenditure does not, by itself, establish entitlement to the 5% rate.
Election and registration requirements
The taxpayer must make a written election for the intellectual property. Once made, the election is irrevocable and continues for subsequent years.
For relevant foreign patent and plant variety right filings dated on or after 5 July 2026, a corresponding Hong Kong patent or plant variety right is required. Check the filing history before relying on the concession.
Tax Concessions for Treasury, Leasing and Insurance
Hong Kong offers reduced rates for several specialist business activities. These regimes usually require management and income-generating activities in Hong Kong, supported by adequate local resources.
| Activity | Treatment of qualifying profits |
|---|---|
| Corporate treasury centers | 8.25% |
| Aircraft lessors | 8.25%, with acquisition-cost deductions under the revised regime |
| Aircraft leasing managers | 8.25% |
| Qualifying reinsurance and captive insurance business | 8.25% |
| Specified insurance and insurance brokerage business | 8.25% |
| Ship lessors | 0% |
| Ship leasing managers | 0% or 8.25% |
| Ship agents, ship managers and ship brokers | 0% or 8.25% |
Corporate treasury centers
A qualifying corporate treasury center can pay 8.25% on profits from covered group-financing and treasury activities. These may include managing cash, arranging financing and providing treasury services to associated companies.
Qualification can follow the dedicated treasury-center conditions, the safe-harbor tests or a Commissioner’s determination. The safe-harbor route includes tests for the proportions of treasury profits and treasury assets.
For a group planning to centralize financing in Hong Kong, assess the expected activities and income before establishing the center. That review helps determine the structure, staffing and records needed for the concession.
Aircraft leasing
Aircraft lessors and leasing managers meeting the regime’s requirements benefit from an 8.25% rate on covered profits. Amendments enacted in 2024, applying from 2023/24, expanded the regime and introduced deductions for aircraft acquisition expenditure.
The older arrangement assessing only 20% of net lease payments is restricted to operating leases of aircraft acquired and used in qualifying leasing activities before 2023/24. It is not the general treatment for newly acquired aircraft.
Ship leasing and maritime services
Qualifying ship lessors pay 0% on covered leasing profits. Ship leasing managers and specified maritime service providers may receive a 0% or 8.25% rate, depending on their activities and the services provided.
When planning a maritime operation, identify the leasing, management and agency income separately. This allows the business to assess the appropriate concession for each activity.
Tax Concessions for Funds, Family Offices and Carried Interest
These regimes support investment management and family wealth structures. They have different ownership, activity and transaction requirements, so the appropriate route depends on how the investments are organized.
Unified fund exemption
The unified fund exemption has applied since 1 April 2019. It accommodates onshore and offshore funds of different structures, provided they meet the statutory definition of a fund and the transaction requirements.
Transactions must generally be carried out through or arranged in Hong Kong by a corporation licensed by the Securities and Futures Commission (SFC), or an authorized financial institution registered with the SFC. An alternative route applies to funds meeting the qualified investment fund conditions.
Profits from covered transactions are exempt from profits tax. Investments in private companies and income from incidental transactions have additional requirements.
Family-owned investment holding vehicles
An eligible family-owned investment holding vehicle managed by an eligible single family office can receive a 0% rate on qualifying transaction profits. The concession applies from the year of assessment 2022/23.
The main requirements include:
- At least HK$240 million in aggregate net asset value of specified assets managed for the family’s relevant vehicles
- At least 95% family beneficial ownership under the ordinary ownership rule
- Normal management or control of the vehicle in Hong Kong
- Investment activities carried out in Hong Kong
- Adequate qualified staffing and local operating expenditure
A modified ownership rule applies where a qualifying section 88 tax-exempt charitable entity participates.
The minimum substantial-activity thresholds are two qualified full-time employees and HK$2 million of operating expenditure in Hong Kong. Permitted outsourcing to the eligible single family office can satisfy these requirements; each holding vehicle does not necessarily need its own directly employed team.
The family office must have resources proportionate to the activities it performs. Up to 50 vehicles managed by the same eligible family office may benefit from the concession.
The 0% treatment concerns investment profits of the vehicles. The family office’s service income has separate tax treatment, as explained in our guide to family offices in Hong Kong.
Carried interest
Eligible carried interest can receive a 0% profits tax rate, while qualifying employee receipts are excluded from salaries tax. The established framework includes fund certification by the Hong Kong Monetary Authority, a qualifying profit-related return and substance requirements for investment management activities in Hong Kong.
These concessions do not cover ordinary management fees or every performance-related bonus. The underlying investments and payment arrangements determine whether a receipt falls within the regime.
Foreign Income and Double Taxation Relief
Hong Kong generally taxes business profits arising in or derived from Hong Kong. For ordinary business profits, the source analysis examines the operations that generated the income, rather than relying only on the customer’s address or where payment was received.
A company claiming offshore treatment needs records supporting that analysis. Contracts, negotiations, service delivery and purchasing or sales activities may all be relevant to the particular business.
Foreign-sourced income received by multinational entities
The foreign-sourced income exemption regime applies to specified foreign income received in Hong Kong by multinational enterprise entities. It covers foreign-sourced dividends, interest, intellectual property income and disposal gains, subject to statutory exclusions and exceptions.
The principal exceptions differ by income type:
| Income | Main exceptions to examine |
|---|---|
| Interest | Economic substance |
| Dividends | Economic substance or participation exemption |
| Gains on disposal of equity interests | Economic substance or participation exemption |
| Gains on disposal of other non-IP assets | Economic substance |
| Qualifying intellectual property income and disposal gains | Nexus requirement |
Equity-interest disposal gains have been covered since 1 January 2023. The regime expanded to other disposal gains from 1 January 2024, while separate intra-group transfer relief may defer tax on certain transfers between associated entities.
Participation exemption and the 15% test
The participation exemption includes a minimum 5% equity holding for at least 12 months. Residence or permanent-establishment requirements and anti-abuse conditions also apply.
One of those conditions is the subject-to-tax test. It examines whether the relevant foreign income, or underlying profits in the case of dividends, has been subject to a similar foreign tax with an applicable rate of at least 15%.
The applicable rate generally refers to the foreign jurisdiction’s top corporate tax rate. It is not necessarily the withholding or effective rate actually paid, so a dividend subject to 10% withholding tax does not automatically fail the test.
If the participation requirements are met but the subject-to-tax condition fails, relief switches from exemption to a foreign tax credit. The economic-substance route remains a separate exception to examine.
Double taxation agreements
As of October 2026, Hong Kong has signed comprehensive double taxation agreements with 60 jurisdictions, of which 51 are in force. The agreements can reduce foreign withholding tax and provide relief where the same income is taxed in both jurisdictions.
Treaty benefits depend on the particular agreement, its effective dates and the recipient’s eligibility. A Hong Kong company seeking those benefits may need a certificate of resident status from the IRD.
Hong Kong has no comprehensive double taxation agreement with the United States. Domestic US exemptions may still apply to particular payments, but a Hong Kong company cannot claim reductions under a US–Hong Kong comprehensive treaty.
Global Minimum Tax for Large Multinational Groups
Hong Kong’s global minimum tax framework covers multinational groups meeting the EUR750 million consolidated revenue threshold in at least two of the four preceding fiscal years. The income inclusion rule and Hong Kong minimum top-up tax apply to fiscal years beginning on or after 1 January 2025.
For an in-scope group, a concessionary profits tax rate may lead to additional top-up tax. The calculation follows the global minimum tax rules, rather than simply comparing the statutory concession rate with 15%.
There are also exclusions. Investment entities and insurance investment entities are excluded from Hong Kong minimum top-up tax, while other global minimum tax provisions require separate analysis.
Proposed Changes to Hong Kong Tax Incentives
The government announced several tax-reform proposals during 2026. The following separates those announcements from the established concessions described above.
| Area | Announced proposal | Status and milestones |
|---|---|---|
| Funds and family investment vehicles | Expand covered investments and amend exemption conditions | Bill gazetted on 12 June 2026; the IRD continues to describe the amendments as proposed |
| Carried interest | Remove fund certification and hurdle-rate requirements and broaden covered arrangements | Included in the funds bill; transitional filing guidance is available |
| Maritime services | Enhance existing concessions and introduce an optional 15% rate | Bill gazetted on 12 June 2026; no passage announcement identified in government records checked through 26 October |
| Physical commodity trading | Introduce an 8.25% concession for covered activities | Included in the shipping bill |
| Corporate treasury centers | Introduce a pre-approval route and revise qualification requirements | Consultation held from 27 July to 4 September 2026 |
| Intellectual property expenditure | Expand deductions for acquiring IP rights and licenses | Bill gazetted on 16 October 2026; introduction scheduled for 28 October 2026 |
Gazettal of a bill is not enactment. Before relying on an announced change, confirm the final legislation, commencement provisions and administrative guidance.
Transitional filing arrangements for funds and carried interest
The IRD announced an administrative measure allowing taxpayers eligible under the proposed funds, family investment vehicle and carried interest amendments to submit their 2025/26 returns on that basis. Its carried-interest filing guidance also explains how to complete the relevant supplementary form when relying on the proposed changes.
Taxpayers using the measure must monitor the final legislation. If changes require a revision to a submitted return, the IRD’s notice says the taxpayer should notify the department in writing.
Intellectual property expenditure proposal
The intellectual property expenditure proposal changes deductions for acquiring rights and licenses, including rules affecting related-party purchases. The announced application date covers qualifying contracts entered into on or after 1 April 2026, subject to enactment.
As of 27 October 2026, the bill is scheduled for introduction into the Legislative Council on 28 October. Its proposed deductions should therefore be distinguished from the existing patent box concession.
How to Claim Hong Kong Tax Incentives
Most concessions are reflected in the profits tax return and the supplementary forms for the particular regime. Some also require an election, certification or other procedure before a claim can be made.
1. Check eligibility before committing expenditure
Confirm the covered activities, ownership conditions and local resource requirements before making an investment or restructuring the business. For R&D and intellectual property, establish which projects and expenditure categories qualify.
2. Complete elections and certifications
Identify any written elections, certification procedures or approvals required by the regime. Some elections are irrevocable, including those for the patent box and family-owned investment holding vehicle concession.
3. Maintain evidence throughout the year
Separate covered income and expenditure from other business activities. Keep contracts, project records, staffing evidence and cost allocations, and retain business records for at least seven years.
4. Prepare the return and supporting calculations
File the profits tax return and supplementary forms by the deadline on the return or an approved extension. A first return is commonly issued around 18 months after incorporation, but that issue date is not the filing deadline.
Emerhub’s Hong Kong accounting services support bookkeeping, audit coordination and profits tax return preparation. Our team can review potential concessions alongside the records and calculations needed to support a claim.
Plan Your Hong Kong Tax Incentives With Emerhub
The right tax treatment depends on how your business earns income and organizes its activities. Reviewing the concessions before setup or expansion gives you time to establish the required records, resources and elections.
Emerhub can help you:
- Assess the concessions relevant to your activities
- Plan company setup and ongoing administration
- Maintain accounting records and coordinate the annual audit
- Prepare profits tax returns and supplementary forms
If you are establishing a new entity, see our Hong Kong company registration services. You can also contact our Hong Kong team to discuss your business and tax reporting requirements.
Frequently asked questions
Does Hong Kong offer a tax holiday for new companies?
Hong Kong does not offer a general tax holiday for newly incorporated companies. Eligible corporations instead use the two-tiered rates of 8.25% on the first HK$2 million of assessable profits and 16.5% above that.
Other exemptions and reduced rates depend on business activities and the conditions of each regime. Incorporation alone does not establish entitlement to them.
Can foreign-owned companies claim Hong Kong tax incentives?
Yes. Foreign ownership does not prevent a company from claiming the same concessions available to locally owned businesses.
Each regime has its own requirements. These may concern activities, management, ownership, expenditure and resources in Hong Kong.
What is the lowest corporate tax rate in Hong Kong?
Some profits receive a 0% rate or exemption, including covered family investment vehicle and ship leasing profits. The patent box provides a 5% rate on the qualifying portion of eligible IP profits.
For corporations using the general two-tiered regime, the first HK$2 million of assessable profits is taxed at 8.25%. The standard corporate rate is 16.5%.
Can a software company use the patent box?
Software copyright is an eligible category of intellectual property. The software and related income must meet the regime’s requirements, including the link to R&D expenditure.
The company also needs to make an election. The portion of profits receiving the 5% rate is determined using the nexus calculation.
Does every family investment vehicle need its own employees?
The rules permit investment activities to be outsourced to the eligible single family office, and its staffing and expenditure can be considered when assessing the vehicle’s substantial activities.
The resources must be adequate for the work performed. The minimum thresholds are two qualified full-time employees and HK$2 million in local operating expenditure, with the overall arrangement assessed on its facts.
Do I need to apply separately for the two-tiered rates?
The rates are claimed through the profits tax return rather than a separate advance application. Connected entities must coordinate which eligible entity will use them.
Certain concessionary regimes restrict access to the two-tiered rates. Check those restrictions before calculating the company’s tax.