Understanding provisional profits tax in Hong Kong

What Is Provisional Profits Tax

Provisional profits tax is an advance payment of profits tax. The Inland Revenue Department requires this payment before the final tax for a year of assessment is determined. Its amount is based on the assessable profits of the preceding year, because the actual profits for the current year are not yet known when the tax is due. This system collects tax closer to the time the income is earned, rather than waiting until after the year ends and the return is filed.

The Inland Revenue Department issues a notice of assessment that includes both the final tax for the previous year and the provisional tax for the current year. The taxpayer pays the total amount by the payment deadline stated on the notice. The Department holds the provisional tax and credits it against the final tax liability when the current year's assessment is raised. Any overpayment is refunded.

Provisional Tax Hong Kong

In Hong Kong, provisional tax applies to profits tax, salaries tax, and property tax. For businesses, the Inland Revenue Department calculates provisional profits tax using the assessable profits reported in the most recent profits tax return. The tax is levied at the same two-tiered rates that apply to final profits tax: 8.25% on the first HK$2,000,000 of estimated profits for corporations and 16.5% on the remainder, with lower rates for unincorporated businesses.

The Department raises the provisional tax assessment when it issues the profits tax return for the year of assessment. Both the final assessment for the earlier year and the provisional assessment for the current year appear on the same notice of assessment. The taxpayer must pay both amounts by the due date, unless a holdover application is made.

Hong Kong Provisional Profits Tax and the Year of Assessment

Provisional profits tax in Hong Kong follows the same basis period as the final tax. The year of assessment runs from 1 April to 31 March. A company with a 31 December accounting year end, for example, files its profits tax return for the year of assessment 2024-25 based on the profits for the period ending 31 December 2024. The provisional tax for 2025-26 is then estimated from that same basis period.

The Inland Revenue Department does not wait for the actual profits of the current year to be reported. It uses the profits from the preceding year as the best available estimate. If the business has since ceased trading or its profits have fallen significantly, the taxpayer may apply for the provisional tax to be reduced or held over.

Paying Provisional Tax

Paying provisional tax is mandatory once the Inland Revenue Department issues a notice of assessment that includes a provisional charge. The payment deadline is set out in the notice, typically one month after the date of the assessment. If the taxpayer has appointed a tax representative, the Department's block extension letter may shift the due date, but the provisional element remains payable on the same schedule.

Failure to pay by the deadline may lead to recovery action, including a surcharge. The provisional tax paid is not a deposit. It is an estimated tax the Department retains until the final liability for that year of assessment is settled. When the final tax is lower than the provisional amount paid, the Department refunds the difference but does not pay interest on the overpayment.

Provisional Tax Calculation

The provisional tax calculation is straightforward. The Inland Revenue Department takes the assessable profits as finally determined for the most recent completed year of assessment and applies the current year's tax rates to that figure. The result is the provisional tax charge for the current year.

For example, if a corporation had assessable profits of HK$3,000,000 for the year ended 31 December 2024, the Department calculates provisional tax for the year of assessment 2025-26 as follows: HK$2,000,000 at 8.25% (HK$165,000) plus HK$1,000,000 at 16.5% (HK$165,000), giving a total of HK$330,000. The notice of assessment for 2024-25 would show the final tax due on that year and the HK$330,000 provisional tax for 2025-26.

The calculation does not account for estimated losses, capital allowances, or other deductions that may reduce the actual liability for the current year. The taxpayer must claim those items separately in the profits tax return when it is filed. If the taxpayer believes the provisional amount is too high, an application for holdover can be made.

Applying for a Holdover of Provisional Tax

A taxpayer who expects the actual assessable profits for the current year to be lower than those of the preceding year may apply to hold over part or all of the provisional tax. The application must be made in writing to the Inland Revenue Department, usually using the form provided with the notice of assessment or by letter.

The Department will grant a holdover only if the taxpayer can demonstrate that the estimated profits for the current year are less than those of the preceding year, that the business has ceased or will cease before the end of the basis period, or that the provisional tax exceeds the final tax that will be charged. The taxpayer must provide a tax computation showing the estimated profits for the current year and supporting figures.

The application must reach the Department before the payment deadline. A late application may be rejected, forcing the taxpayer to pay the full amount. A successful holdover defers the payment but does not cancel the liability. The Department will raise a revised assessment when the actual profits are known, and the deferred amount becomes payable.

Using the Business Tax Portal and Tax Representative

Taxpayers may manage provisional tax through the Inland Revenue Department's Business Tax Portal. The portal allows registered users to view notices of assessment, check payment deadlines, and submit applications for holdover where the portal supports it. A tax representative registered with the Department can act on behalf of the taxpayer using the Tax Representative Portal.

The tax representative should file the profits tax return, including Form BIR51 for corporations, by the due date. The block extension scheme, which gives later filing dates for returns prepared by a tax representative, does not extend the time for paying provisional tax. The payment deadline on the notice of assessment remains the same regardless of the filing extension.