What are the profits tax rates in Hong Kong

What Is the Profits Tax Rate in Hong Kong

Hong Kong levies profits tax at 16.5% for corporations and 15% for unincorporated businesses. These are the upper rates of a two-tiered system that benefits most taxpayers. Corporations pay 8.25% on the first HK$2,000,000 of assessable profits and 16.5% on any remainder. Unincorporated businesses pay 7.5% on the first HK$2,000,000 and 15% on the remainder.

The Inland Revenue Department administers this tax under the Inland Revenue Ordinance. Hong Kong does not impose a goods and services tax, value-added tax, capital gains tax, or tax on dividends. Profits tax is the primary direct tax on business income.

Hong Kong Corporate Tax Rate

The headline Hong Kong corporate tax rate is 16.5% of assessable profits. The two-tiered structure lowers this to an effective 8.25% on the first HK$2,000,000 of profit. A corporation with HK$2,000,000 of assessable profits pays HK$165,000 in tax, not the HK$330,000 it would pay at the flat rate.

Only one entity within a group of connected entities may claim the lower two-tiered rate. All other connected entities are charged at the full 16.5% on all assessable profits. The Inland Revenue Department considers two entities connected where one controls the other or both are controlled by the same person.

Hong Kong Profits Tax Percentage

The profits tax percentage depends on the business's legal form and the application of the two-tiered rate. For corporations, the effective rate is 8.25% on the first HK$2,000,000 of profit and 16.5% on profit above that threshold. For unincorporated businesses like sole proprietorships and partnerships, the rates are 7.5% and 15% respectively.

These percentages apply to assessable profits after deducting allowable expenses incurred in producing those profits. The basis period for assessment follows the company's accounting year. The Inland Revenue Department issues annual tax returns, Form BIR51 for corporations and Form BIR52 for unincorporated businesses, at the start of each year of assessment.

Current Profits Tax Rate Hong Kong

The current profits tax rate in Hong Kong is unchanged since the two-tiered system's introduction. The rates are fixed in the Inland Revenue Ordinance and are not adjusted annually. The standard rates of 16.5% for corporations and 15% for unincorporated businesses remain the headline rates, with the two-tiered structure applying automatically to eligible taxpayers.

A connected entity not entitled to the lower rate pays the current standard rate on all assessable profits. The Inland Revenue Department defines a connected entity by reference to control and common ownership. A holding company and its subsidiaries are all connected, so only one may use the two-tiered rates.

Two-Tiered Rates and Assessable Profits

The two-tiered rates apply to the first HK$2,000,000 of assessable profits of a qualifying entity. Assessable profits are the net profits derived from a trade, profession, or business carried on in Hong Kong, computed in accordance with the Inland Revenue Ordinance. The lower tier applies regardless of the entity's total profit. A large corporation with HK$10,000,000 of assessable profits still pays 8.25% on the first HK$2,000,000 and 16.5% on the remaining HK$8,000,000.

The Inland Revenue Department does not require an election to access the two-tiered rates. They apply automatically on the tax return. If a taxpayer believes they are a connected entity, they must indicate this on the return so the department can determine whether the lower rate is available.

What to Do Next

File your profits tax return with the Inland Revenue Department each year of assessment. The due date depends on the company's accounting date and whether a tax representative has been appointed. A block extension scheme applies where a tax representative files returns, setting later due dates for taxpayers with accounting periods ending on common dates. Check the Inland Revenue Department's practice notes for the current year's filing deadlines.