In this course · 6 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
In Hong Kong, sole proprietorships and partnerships pay profits tax of 7.5% on the first HK$2 million of assessable profits and 15% on the rest, from the 2018/19 year of assessment. Only one entity in a group of connected entities can use the lower rate.
Sole proprietorships and partnerships are chargeable to profits tax at lower rates than corporations:
| Slice of assessable profits | Rate (unincorporated) |
|---|---|
| First HK$2,000,000 | 7.5% |
| Remainder | 15% |
A few practical points:
- A sole proprietor reports business profit on the individual tax return (BIR60) with supplementary forms; a partnership files a profits tax return for persons other than corporations (BIR52).
- A proprietor's own salary, drawings, interest on capital, and Mandatory Provident Fund (MPF) contributions for themselves (other than the self-employed mandatory deduction) are not deductible against business profit. In a partnership the same applies to partners and their spouses.
- If a sole proprietor elects personal assessment (a way of combining all your income so allowances apply), personal allowances can reduce the tax. The profits tax and salaries tax of the same person are separate charges.
- The one-off 2025/26 tax reduction (100%, capped at HK$3,000) applies per business for profits tax.
The tax year is 1 April to 31 March, and the basis period is normally the accounting year ending in it.
Legal basis and sources
The law
- Inland Revenue Ordinance (Cap. 112), Schedule 8
- Inland Revenue Ordinance (Cap. 112), s.17
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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