What are Hong Kong's two-tiered profits tax rates?

Two-Tiered Profits Tax Hong Kong

Hong Kong levies a lower profits tax rate on the first HK$2,000,000 of assessable profits for most businesses. This two-tiered profits tax Hong Kong structure reduces the tax burden on smaller enterprises while maintaining the standard rate for larger profits.

Hong Kong Two-Tiered Tax System

The system creates two tax bands for each taxpayer. Corporations pay 8.25% on the first HK$2,000,000 of assessable profits and 16.5% on any amount above that threshold. Unincorporated businesses pay 7.5% on the first HK$2,000,000 and 15% on the remainder. The Inland Revenue Department applies these rates automatically when computing tax liability.

Profits Tax Tiers Hong Kong

The two tiers operate within a single tax calculation. A corporation with assessable profits of HK$3,000,000 pays 8.25% on the first HK$2,000,000 and 16.5% on the remaining HK$1,000,000. Unincorporated businesses follow the same principle at their respective rates. The Inland Revenue Ordinance (Cap. 112) sets out this tiered structure.

First HK$2,000,000 Profits Tax Rate

The lower rate on the first HK$2,000,000 applies only to a solo entity. If a taxpayer belongs to a group, only one entity may elect to use the two-tiered rates. All other connected entities are charged at the upper rate on their entire assessable profits, regardless of profit level.

Connected Entity Profits Tax

The Inland Revenue Department defines a connected entity as a corporation or business associated with the taxpayer through common ownership or control. When a group election is made, the designated entity receives the lower rate on its first HK$2,000,000. All other group members pay 16.5% (corporations) or 15% (unincorporated businesses) on their entire assessable profits. This rule prevents the fragmentation of a single business into multiple entities to multiply the lower-rate benefit.