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Course 3
Handle advance tax payments
4 lessons · 4 min
The short answer
Hong Kong provisional profits tax is an advance payment on next year's tax, calculated from the profits just assessed. It is offset against the final tax for that year, with any excess applied to the next year's provisional tax or refunded. It is paid in instalments set out on the demand note, and a missed instalment can attract a 5% surcharge.
When the Inland Revenue Department (IRD) issues the assessment for a year of assessment, it also charges provisional tax for the following year, based on the profits just assessed. In effect you pay part of next year's tax before your results are known.
- The provisional tax paid is applied first against the final profits tax for the year it relates to.
- Any excess is then applied against the next year's provisional tax, or refunded.
- The demand note shows how the amount is payable (often in two instalments with separate due dates).
- If an instalment is missed, the remainder can become immediately due and the IRD can impose a 5% surcharge on the unpaid balance and begin recovery action.
First years: the first assessment for a new business can therefore include a provisional tax charge for the following year, which surprises new owners. That is a cash-flow point to plan for.
One-off reduction: the 2025/26 tax reduction (100%, capped at HK$3,000) applies to the final tax for 2025/26, not to provisional tax. You still pay provisional tax on time, and the reduction shows up when the final assessment is raised.
If your profits drop, see the answer on how to hold over (reduce) provisional profits tax.
Legal basis and sources
The law
- Inland Revenue Ordinance (Cap. 112), Part 10A (provisional profits tax)
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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