Hong Kong corporate tax rate, incentives, filing dates, and compliance explained

Why expand to Hong Kong?

There are many reasons why global businesses favour Hong Kong. Located in the heart of Asia, Hong Kong isn't only a gateway to the huge Mainland China market but also serves as a vital link between Asian markets and the rest of the world.

However, it is its competitive yet simple corporate tax regime that truly attracts foreign companies and investment. This has earned Hong Kong the title of "world's freest economy", having taken the top spot for "freedom to trade internationally" on the Economic Freedom of the World 2025 Annual Report.

Corporate tax in Hong Kong

Hong Kong follows a territorial tax system. It only subjects profits arising in or derived from its territory to profits tax. The profits tax applies to both resident and non-resident companies on profits sourced in Hong Kong.

The Hong Kong profits tax rate is two-tiered – the first HK$2 million of assessable profits is taxed at 8.25% and anything above at 16.5%. For unincorporated businesses (usually sole proprietorships and partnerships), profits tax rates are lowered to 7.5% and 15%.

Apart from a low-tax regime, Hong Kong offers various tax incentives and tax exemptions. Foreign-sourced income is largely tax-exempt, although conditions apply. Furthermore, Hong Kong doesn't impose a capital gains tax or tax dividends, nor does it charge withholding tax on interest income.

The Inland Revenue Department (IRD) is in charge of collecting taxes and enforcing tax laws in Hong Kong.

Tax rates and structures

Profits tax rates in Hong Kong are uniform, irrespective of whether a company is local or foreign, a first-time taxpayer or a repeat taxpayer.

However, there's a caveat to the two-tier tax system that foreign companies must take note of. As an anti-avoidance measure, Hong Kong allows only one entity from two or more "connected entities" to benefit from the two-tier tax rates.

Connected entities could be a parent company and its subsidiaries, a company with control over another company, or two sole proprietorships operated by the same individual. Entities not eligible for the two-tier rates are required to pay profits tax at the higher 16.5% rate (or 15% for unincorporated businesses).

What are assessable profits?

Assessable profits are net profits arising in or derived from Hong Kong, determined based on the source of profits and after permissible deductions and allowances.

To compute assessable profit, take net profits, add non-deductible expenses and subtract non-taxable income (such as capital gains of a capital nature and qualifying foreign-sourced income, as well as applicable capital allowances).

How Hong Kong determines the source of profits

In practice, determining whether profits are sourced in Hong Kong is not based on where a company is incorporated or where customers are located. Instead, Hong Kong courts apply what is commonly known as the “operations test.”

Under this test, the Inland Revenue Department examines where the profit-generating activities actually take place—such as contract negotiation, decision-making, and execution of core business operations. If these activities are carried out in Hong Kong, the resulting profits are generally considered Hong Kong-sourced and subject to profits tax.

This principle has been consistently upheld by Hong Kong courts and forms the legal foundation of the city’s territorial tax system.

Deductible expenses

Under Section 16(1) of Hong Kong's Inland Revenue Ordinance (IRO), businesses may deduct expenses that are incurred wholly, exclusively, and necessarily in the production of assessable profits, such as:

• Salaries
  
• Rent and utilities
  
• Certain maintenance costs
  
• Professional service costs (accounting, banking, advertising, etc)
  
• Raw material and inventory
  
• Interest on loans taken for profit generation.
  

Non-deductible expenses

Non-deductible expenses include:

• Domestic or private expenses
  
• Expenses not incurred in earning a profit
  
• Capital expenditure (plant and machinery costs, equipment upgrade costs, etc)
  
• Rent and other expenses related to premises not used for the purpose of earning profit
  
• Insurance amount gained
  
• Taxes.
  

Tax incentives

Hong Kong offers various tax incentives to reduce the total tax burden and promote foreign investment and global expansion. Major incentives include:

• Foreign Sourced Income Exemption: Introduced in 2023, this tax exemption covers four types of foreign-sourced income: Interest, dividends, disposal gains from equity interest sales, and intellectual property income. Its scope was expanded in 2024 to include disposal gains on other types of assets, including movable and immovable assets. The exemption is subject to meeting conditions set by the Inland Revenue Department, such as economic substance requirements (for example, having an adequate workforce and business premises in Hong Kong), participation requirements, or nexus requirements, depending on the type of foreign-sourced income.
  
• Intellectual property tax incentives: The Patent Box tax incentive offers eligible businesses a concessionary profits tax of 5% on eligible intellectual property income derived from eligible patents. Another intellectual property tax incentive is a tax exemption on foreign-sourced IP income. To avail of this, companies must fulfil the IRD's nexus requirement—spend a stipulated portion of their total budget for creating the IP asset in Hong Kong.
  
• Green incentives: Companies that buy environmentally friendly machinery and vehicles in Hong Kong benefit from a 100% tax deduction on capital expenditure incurred on such purchases.
  

Historical tax rates and recent reforms

Hong Kong introduced its two-tiered profits tax system in March 2018, primarily to help small and medium-sized enterprises reduce their tax liability. In the decade before this reform, the profits tax rate was stable at 16.5%.

In fact, the Hong Kong profits tax rate has consistently hovered around the 16.5% mark since the turn of the century, only rising briefly to 17.5% in 2004.

In the recent past, Hong Kong has continued to enforce tax reforms, including:

• Global Minimum Tax: Implementing an international tax reform to tackle cross-border tax evasion, Hong Kong introduced a 15% global minimum tax under the OECD Pillar Two Framework, applying only for multinational groups with a consolidated annual revenue of EUR 750 million or more, effective from January 2025.
  
• Revised Foreign Sourced Income Exemption: A year after it introduced the scheme, it expanded the scope of foreign-sourced income eligible for tax exemption to include disposal gains on other types of assets, such as movable and immovable assets.
  

When to file tax returns

Corporate income tax season in Hong Kong begins with the Inland Revenue Department issuing profits tax returns on the first working day of April for the previous assessment year. The assessment year in Hong Kong generally begins on April 1 and ends on March 31 of the following year. Companies have a month to file their profits tax return from the day it is issued.

For newly established businesses, their first profits tax return is issued 18 months after incorporation. They get a longer period to file their returns – usually three months.

Each tax return is accompanied by a form, with different forms for different business types. Hong Kong incorporated companies must use Form BIR51, unincorporated companies BIR52, and non-resident companies BIR54. Additionally, companies filing taxes under the two-tiered system must submit supplementary forms.

The profits tax return and supplementary forms (if any) must be accompanied by a complete tax computation and audited accounts. The returns can be filed manually or electronically.

Missing the tax filing deadline, being late on payments, and underreporting taxable profits can result in late fines, surcharges, and even legal action.

It's also important to note that Hong Kong companies are required to file profits tax returns even if they have not generated any profit during the assessment year. In such cases, companies must submit a “NIL” return declaring no assessable profits, together with the relevant supporting documents.

Failing to file a return, regardless of profitability, can still result in penalties or IRD enquiries.

Provisional profits tax

Corporate taxpayers in Hong Kong are required to pay profits tax in two instalments, with the payment dates usually falling between November of the year the return is issued and April of the following year. Payments must be made in HKD to the Inland Revenue Department.

Hong Kong follows a provisional tax payment system—businesses make estimated tax payments in the current year based on the previous year's taxable profits. The first instalment covers 75% of the estimated tax payable, and the second instalment covers the rest. The provisional payments are credited against the final tax payable, which is computed after the returns have been filed. In case of overpayment, the excess is refunded or credited to the next assessment year.

Reducing tax burden with double taxation agreements

Hong Kong's territorial tax system—which only taxes profits arising in or derived from its territory—already helps businesses avoid double taxation.

However, the country still has double taxation agreements with more than 50 countries because, as the IRD puts it, "a DTA provides certainty to investors on the taxing rights of the contracting parties, helps investors better assess their potential tax liability on economic activities, and provides an added incentive for overseas companies to do business in Hong Kong, and likewise, for Hong Kong companies to do business overseas".

Double taxation agreements offer tax deductions on various kinds of income, such as dividends, interest, royalties, and capital gains. One way in which Hong Kong protects companies operating on its soil from being taxed twice on the same income is by providing credits for taxes paid in a foreign jurisdiction on income derived from that jurisdiction. These tax credits are paid on the basis of tax computations made under local tax regulations in Hong Kong.

While Singapore doesn't have a comprehensive double taxation agreement with Hong Kong, the two countries have an agreement for the avoidance of double taxation on income from shipping and aircraft operations. Under this 2003 treaty, Singapore shipping enterprises and airlines are exempt from paying corporate tax in Hong Kong on income generated from the operation of ships and aircraft in international traffic.

Other taxes to take note of

Hong Kong doesn't impose capital gains tax, value-added tax (VAT), or withholding tax on dividends and interest income. Apart from profits tax, two major taxes make up a company's tax liability in Hong Kong. These are:

• Salaries tax: Salaries tax is levied on some but not all income from employment (employee salaries, bonuses, leave pay, tips, etc), office (director's fees), and pension after subtracting permissible deductions and allowances. Salaries tax rates range from 2% to 17%. Income not exceeding HK$50,000 is taxed at 2%, more than HK$50,000 but less than HK$100,000 at 6%, more than HK$100,000 but less than HK$150,000 at 10%, more than HK$150,000 but less than HK$200,000 at 14%, and more than HK$200,000 at 17%.
  
• Property tax: A flat 15% tax is paid by owners of land or buildings on the net assessable value (rental income) of the asset after a standard deduction of 20%.
  

Impact of salaries tax on taxable income

Salaries tax is assessed separately from profits tax. But while calculating assessable profits for profits tax, companies can deduct employee remuneration expenses when calculating assessable profits, which indirectly reduces overall profits tax liability

Tax compliance and registration

Once a business is registered in Hong Kong (after receiving a Business Registration Certificate from the Inland Revenue Department) and starts operating, it becomes automatically liable to pay profits tax. Here are some tips, especially for foreign companies, to carry out their tax obligations and stay compliant:

• Keep proper records of financial statements, invoices, and vouchers going back a few years.
  
• Get financial statements audited professionally.
  
• Keep an eye out for when the profits tax returns are issued. Should the IRD not issue tax returns, companies still have an obligation to notify the department if they have earned taxable profits.
  
• File profits tax returns on time and make timely provisional tax payments to avoid late fees and penalties.
  
• Attach the correct type of form and supplementary forms with tax returns.
  
• Pay salaries tax on employee remuneration on time and maintain detailed records of each employee's details.
  

How Aspire supports your expansion into Hong Kong

Expanding into Hong Kong means managing taxes, cash flow, and cross-border payments with confidence. Aspire gives you the financial infrastructure to operate compliantly, control costs, and scale without unnecessary complexity.

• Business account: Get our multi-currency account to make and receive payments in 30+ currencies across 130 countries – at market-leading FX rates.
  
• Corporate cards: Account holders get unlimited virtual corporate cards that help boost company cash flow. To ensure tight financial control and prevent misuse, each card comes with personalised spend limits and budgets.
  
• Aspire Accounting: Automated workflows and smart accounting integrations contribute to accurate record-keeping, helping in tax compliance.
  

Frequently asked questions

How much is the corporation tax in Hong Kong?

Hong Kong follows a two-tiered tax rate system in which businesses (resident and non-resident) are taxed at 8.25% on the first HK$2 million of assessable profits and at 16.5% on anything more. Tax rates for unincorporated businesses are lower at 7.5% and 15%.

In cases where the two-tiered system doesn't apply, companies are taxed at the higher rate of 16.5% (corporations) or 15% (unincorporated companies).

What is the two-tier tax in Hong Kong?

As mentioned above, Hong Kong's profits tax is imposed in two tiers – at a lower rate of 8.25% on the first HK$2 million of assessable profits and a higher 16.5% rate on assessable profits that exceed that threshold.

What is the tax rate in Hong Kong vs Singapore?

In comparison, the corporate tax rate in Singapore is a flat 17%, applicable to both local and foreign companies.

Is Hong Kong tax-free for companies?

No, Hong Kong is not tax-free for companies. However, its territorial tax system only taxes profits arising in its territory. Offshore income is largely tax-exempt, though there are some exceptions to this rule.

Is Hong Kong a tax haven?

Hong Kong is often regarded as a low-tax and business-friendly jurisdiction for many reasons, including its competitive territorial tax system, low tax rates, and the absence of taxes such as VAT, capital gains tax, and wealth tax.