Profits tax definition and Hong Kong tax basics

What Is Profits Tax in Hong Kong

Profits tax is Hong Kong's corporate income tax, charged under the Inland Revenue Ordinance (Cap. 112) on the assessable profits of every business carried on in the territory. Corporations, partnerships and sole proprietorships deriving profits from a trade, profession or business in Hong Kong are all liable. The Inland Revenue Department administers the tax.

There is no capital gains tax. Profits tax is not charged on capital gains.

Hong Kong Profits Tax Explained

Hong Kong's profits tax operates on the territorial source principle. Only profits arising in or derived from Hong Kong are chargeable. Profits sourced outside Hong Kong are not taxable, regardless of where the business is incorporated or where its owners reside. The Inland Revenue Department's guidance on this principle is set out in Departmental Interpretation and Practice Note 21 (DIPN 21).

Profits Tax Rates Hong Kong

Hong Kong applies two-tiered rates. For corporations, the rate is 8.25% on the first HK$2,000,000 of assessable profits and 16.5% on the remainder. Unincorporated businesses pay 7.5% on the first HK$2,000,000 and 15% on the remainder.

Only one entity in a group of connected entities may elect the two-tiered rates. The other entities in the group are charged at the upper rate on all their profits.

How Profits Tax Works HK

Profits tax is assessed on a year of assessment basis. Each year of assessment runs from 1 April to 31 March. A company's basis period is usually its accounting period ending in that year of assessment.

The Inland Revenue Department issues the profits tax return. The return is generally due within one month of issue. Where a tax representative is appointed, the Department publishes a block extension letter setting later filing dates by accounting date.

Territorial Source Tax

The territorial source principle means a Hong Kong company is not automatically liable to profits tax on all its worldwide income. The company must determine whether each source of profit is located in Hong Kong. The test is the operations test: where the profit-earning activities take place, not where contracts are signed or payments are received.

A company that considers its profits to be sourced outside Hong Kong may make an offshore claim in its profits tax return. The Inland Revenue Department examines such claims carefully.

Filing and Forms

Corporations use Form BIR51. Persons other than corporations use Form BIR52. For non-resident persons, the return is Form BIR54. Supplementary forms S1 to S18 accompany the return.

Filing is available through the Business Tax Portal and the Tax Representative Portal. Mandatory electronic filing began on 1 April 2026 for relevant entities of in-scope multinational enterprise groups, from the year of assessment 2025-26. Electronic filers tag financial statements and tax computations in iXBRL.