If I own several companies, can each use the 8.25% profits tax rate?

The lower rate on the first HK$2 million is designed so that a group cannot multiply the threshold by splitting itself into many entities.

How it works

• If, at the end of the basis period, an entity has one or more connected entities, the two-tiered rates apply only to the one nominated.
• The nomination is made in the profits tax return of the nominated entity. Once made it is irrevocable for that year, and it works only if no other connected entity has nominated for the same year.
• Connection is generally based on owning or controlling more than 50% of the shares, voting rights or capital or profits, directly or indirectly, or common control. The Inland Revenue Department's (IRD's) guidance explains the detailed tests.
• A sole proprietor who nominates has to list the names and business registration numbers of all connected entities in supplementary form SP1.

If you get it wrong

Making an incorrect declaration without reasonable excuse can attract additional tax of up to three times the tax undercharged (section 82A), and the IRD will raise additional assessments as if the lower rates did not apply.

Practical tip: nominate the entity expected to have the largest profits up to HK$2 million, and review each year, because the position is tested year by year. A group's holding company and its loss-making subsidiaries are still treated as connected.