In this course · 3 of 7
Course 1
Understand Hong Kong tax
7 lessons · 9 min
- 1What is Hong Kong's territorial basis of taxation (source principle)?
- 2Does Hong Kong have VAT or sales tax? What taxes do businesses pay?
- 3Does a Hong Kong company pay tax on profits earned overseas?
- 4Are dividends taxable in Hong Kong for shareholders and companies?
- 5What is the profits tax rate for a Hong Kong company?
- 6Profits tax rate for a Hong Kong sole proprietorship or partnership?
- 7If I own several companies, can each use the 8.25% profits tax rate?
The short answer
Generally no. A Hong Kong company pays Hong Kong profits tax only on profits that arise in or are derived from Hong Kong, even if it is incorporated here. Exceptions: certain foreign-sourced passive income received in Hong Kong by members of multinational groups under the foreign-sourced income exemption (FSIE) regime, and any profits the Inland Revenue Department (IRD) finds are actually sourced in Hong Kong.
Incorporation in Hong Kong does not decide tax. What matters is whether the profits arise in or are derived from Hong Kong.
Generally not taxable: profits from a business activity whose profit-producing operations take place outside Hong Kong, if you can support that position with evidence.
Still taxable or at risk:
- Profits the Inland Revenue Department (IRD) concludes are sourced in Hong Kong despite the claim (for example, contracts negotiated and concluded here).
- Foreign-sourced dividends, interest, disposal gains and IP income received in Hong Kong by a member of a multinational enterprise group, unless an exception such as economic substance or the participation exemption is met (FSIE regime, from 1 January 2023 for most categories and 1 January 2024 for other disposal gains).
- Royalties for the use of intellectual property in Hong Kong, which are deemed to be Hong Kong profits.
In your return: the profits tax return asks you to report amounts you exclude as offshore, so excluded profits are visible to the IRD. Keep the contracts, correspondence and records of who did what, and where.
A company with only individual shareholders and no foreign group is not within the FSIE definition of a multinational group member.
Legal basis and sources
The law
- Inland Revenue Ordinance (Cap. 112), s.14
- Inland Revenue Ordinance (Cap. 112), s.15H
- Inland Revenue Ordinance (Cap. 112), ss.15K, 15L, 15M and 15OA (FSIE exceptions)
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
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