Hong Kong · Guide
Hong Kong runs one of the simplest and lowest corporate tax systems in the developed world: a two-tier profits tax, a territorial base, and no VAT, capital gains, or dividend withholding.
This guide explains the rates with worked examples, the traps that cost founders money (the connected-entity rule and provisional tax), what Hong Kong genuinely does not tax, and how it compares to Singapore, the UK, and the US. It sticks to the general mechanics that apply to every company. The offshore-claim and non-resident tax questions have their own dedicated guide.
Key rates at a glance
| Item | Rate |
|---|---|
| Profits tax (company), first HK$2M | 8.25% |
| Profits tax (company), above HK$2M | 16.5% |
| Profits tax (sole trader / partnership), first HK$2M | 7.5% |
| Profits tax (sole trader / partnership), above HK$2M | 15% |
| VAT / GST | None |
| Capital gains tax | None |
| Withholding on dividends and interest | None |
Hong Kong Profits Tax: the Two-Tier System, with Examples
The system charges the lower 8.25% rate on the first HK$2M of assessable profits and the standard 16.5% on the rest. Because the lower band is fixed, the effective rate rises gradually as profits grow but never reaches the full 16.5%.
Worked numbers for a single company on Hong Kong-sourced profits:
| Assessable profit | Tax on first HK$2M (8.25%) | Tax on excess (16.5%) | Total tax | Effective rate |
|---|---|---|---|---|
| HK$1,500,000 | 123,750 | 0 | 123,750 | 8.25% |
| HK$2,000,000 | 165,000 | 0 | 165,000 | 8.25% |
| HK$5,000,000 | 165,000 | 495,000 | 660,000 | 13.2% |
| HK$10,000,000 | 165,000 | 1,320,000 | 1,485,000 | 14.85% |
The connected-entity trap (this one costs real money)
Here is the rule most guides skip, and it catches founders who run more than one Hong Kong company. Within a group of connected entities, only one company can elect the two-tier rate in a year of assessment. Every other connected company is taxed at the flat 16.5% throughout.
- "Connected" means one entity controls the other, or both are under common control, where control is generally more than 50% of issued capital, voting rights, or profits.
- You cannot split a business across several Hong Kong companies to claim the 8.25% band on each one's first HK$2M.
- The election is only valid if no other connected entity has already elected for the same year.
If you plan a multi-company structure, decide up front which entity takes the two-tier election. Assuming every company gets it is a common and expensive mistake.
What Hong Kong does NOT tax
Part of Hong Kong's appeal is the taxes that simply do not exist. There is:
- No VAT or GST. You never register for, charge, or file a sales tax.
- No capital gains tax. Genuine capital gains are not taxed (subject to the trading-versus-capital line).
- No withholding tax on dividends or interest paid out of Hong Kong.
- No tax on dividends received from a Hong Kong company.
- No sales tax, no estate duty.
The main exception is royalties paid to non-residents, which do attract a withholding charge (see below). For most trading and service companies, the list of "no tax" items above is the day-to-day reality.
What "territorial" means (in one section)
Hong Kong taxes profits by source, not by where the company is registered or where its owners live. If profits arise in or derive from Hong Kong, they are chargeable; if they genuinely arise elsewhere, they may fall outside Hong Kong profits tax. Source is a factual question about where the profit-earning operations actually took place.
That principle is the basis of the "offshore" treatment, but claiming it is a process with an evidence burden, and your home country may still tax the profits. Both of those, plus the 2024 FSIE rules for passive income, are covered in Hong Kong tax for non-residents. This guide stays on the mechanics that apply to every company.
Hong Kong Withholding Tax: the One That Applies
Hong Kong has almost no withholding tax, with one practical exception founders should know: royalties paid to a non-resident for the use of intellectual property.
- The effective withholding rate is generally 2.475% on the first HK$6.67M and 4.95% above (the rate applied to a deemed 30% profit).
- If the Hong Kong payer once owned the IP and the non-resident recipient is an associate, the deemed profit is 100%, so the effective rate becomes 8.25% / 16.5%.
- Tax treaties often cap the rate at 3% to 4.95%.
Deductions and allowances that lower the bill
Tax is charged on assessable profits, which is your accounting profit adjusted for tax. The essentials:
- General rule: expenses incurred in producing chargeable profits are deductible, if they are not capital in nature.
- Plant and machinery: an initial allowance of 60%, then annual allowances of 10% / 20% / 30% on a reducing-balance pool basis.
- Industrial buildings: 20% initial plus 4% annual; commercial buildings: 4% annual.
- Research and development: a super-deduction of 300% on the first HK$2M of qualifying Type B expenditure and 200% above.
- Charitable donations: deductible up to 35% of assessable profits (minimum HK$100).
- Not deductible: the tax itself, fines, capital losses, and goodwill amortisation.
Hong Kong also runs a patent box at a concessionary 5% on qualifying IP income, and the 2025/26 Budget included a one-off profits-tax reduction capped at HK$3,000. Concessions change yearly, so confirm the current figures at filing.
Provisional profits tax: decoded
This is the single most confusing feature for new founders, so here it is plainly. Hong Kong collects tax on a provisional basis: in one payment cycle you settle the tax for the year just assessed and pay an advance instalment toward the coming year.
- The provisional tax is normally paid in two instalments, roughly 75% then 25%.
- In your first year of assessment the combined bill can therefore look like "double" tax. It is not a penalty, it is the current year plus the advance, and the advance is credited against next year's actual liability.
- If your profits will be lower, you can apply to hold over (reduce) the provisional tax.
When the tax year runs and when you file
- Hong Kong's Year of Assessment runs 1 April to 31 March.
- The IRD usually issues your first Profits Tax Return about 18 months after incorporation, then annually, with audited accounts attached.
- Filing is generally due one month after the return is issued, with a further extension for electronic filing.
The exact deadlines by financial year-end, the mandatory audit, and the late-filing penalties are in the compliance guide.
How Hong Kong compares
For a cross-border founder choosing a base, the headline rate matters:
| Jurisdiction | Headline corporate rate |
|---|---|
| Hong Kong | 8.25% then 16.5% |
| Singapore | 17% |
| United States (federal) | 21% |
| United Kingdom | 25% |
| Australia | 30% |
Rate is not the whole story (treaties, substance, and your own residency all count), but on the pure company rate, Hong Kong sits at the low end of credible, non-blacklisted jurisdictions.
The bottom line
Hong Kong's tax is genuinely low and simple, but the connected-entity rule and provisional tax catch founders who assume too much, and the offshore and home-country questions are separate again. Plan the mechanics rather than guessing them.
CorpSec handles Hong Kong tax computations, returns, and the two-tier election, so your position is optimised and defensible rather than assumed.
Frequently asked questions
What is the corporate tax rate in Hong Kong?
For companies, 8.25% on the first HK$2 million of assessable profits and 16.5% above, on Hong Kong-sourced profits. Sole traders and partnerships pay 7.5% then 15%.
Does Hong Kong tax foreign income?
Hong Kong taxes by source, so genuinely foreign-sourced profits may be outside the charge. Claiming that treatment is a process with an evidence burden, and your home country may still tax you. See tax for non-residents.
How does the two-tier rate work in a group?
Only one company in a group of connected entities can elect the 8.25% band on its first HK$2M in a given year. The others are taxed at 16.5% throughout, so you cannot multiply the low band across entities.
Is there VAT in Hong Kong?
No. There is no VAT, GST, or sales tax, and no capital gains tax or dividend withholding either.
Why does my first tax bill look doubled?
Because of provisional tax: you pay the year just assessed plus an advance instalment toward the next year. The advance is credited against next year's actual bill, and you can apply to hold it over if profits will be lower.
When is my Profits Tax Return due?
The IRD typically issues the first one about 18 months after incorporation, filed with audited accounts. Deadlines depend on your financial year-end. See the compliance guide.
Sources
- Inland Revenue Department: two-tier profits tax rates, deductions and allowances, royalties withholding, and provisional tax
- PwC Worldwide Tax Summaries: corroborating corporate rates and cross-jurisdiction comparison
Worked examples are illustrative and concessions (patent box, one-off rebate) change with each annual Budget; confirm current figures with the IRD at filing. Not tax advice.