Tax in Hong Kong

Rates, returns, deadlines and penalties, in plain words. 54 questions answered.

What is Hong Kong's territorial source principle of taxation?Hong Kong charges profits tax only on profits that arise in or are derived from Hong Kong from a trade, profession or business carried on here. Profits that have a source outside Hong Kong are not chargeable. Where the source lies is a question of fact, decided case by case.
Does a Hong Kong company pay tax on profits earned overseas?Generally no. Profits sourced outside Hong Kong are outside the profits tax charge, even if the company is incorporated here. The exceptions are certain foreign-sourced passive income received in Hong Kong by members of multinational groups under the FSIE regime, and any profits the IRD finds are actually sourced in Hong Kong.
Does Hong Kong have VAT, GST or sales tax?No. Hong Kong has no value-added tax, goods and services tax or sales tax. The only taxes on income are profits tax, salaries tax and property tax, plus duties such as stamp duty. The government also confirms there is no capital gains tax and no withholding tax on dividends or interest.
Are dividends taxed in Hong Kong?No, not in the hands of the recipient in the normal case. Hong Kong has no withholding tax on dividends, and a dividend from a company that is itself subject to Hong Kong profits tax is excluded from the recipient's assessable profits. Foreign-sourced dividends of multinational group members can be taxable under the FSIE rules.
What is the profits tax rate for a Hong Kong company?Under the two-tiered system, a corporation pays 8.25% on its first HK$2 million of assessable profits and 16.5% on the rest. The lower rate is available to only one entity in a group of connected entities. This applies from year of assessment 2018/19 onwards.
What profits tax rate do sole proprietors and partnerships pay in Hong Kong?Unincorporated businesses pay 7.5% on the first HK$2 million of assessable profits and 15% on the remainder, from year of assessment 2018/19. This is the two-tiered system. As with companies, only one entity in a group of connected entities can use the lower rate.
If I own several companies, can each use the 8.25% profits tax rate?No. If entities are connected, only one of them can be nominated to use the two-tiered rates in a year of assessment. The nomination is made in the return and cannot be reversed for that year. The other connected entities pay the standard rate on all their profits.
When will a new Hong Kong company receive its first profits tax return?The IRD generally issues the first Profits Tax Return about 18 months after the date of incorporation. A first-time recipient has 3 months from issue to file. If you are chargeable to tax and receive nothing, you must notify the IRD in writing within 4 months after the end of the basis period.
What is the filing deadline for the Hong Kong profits tax return?The due date is printed on page 1 of the return, normally one month from issue. First-time recipients get 3 months, and e-filers under the e-notice get 2 months. Represented taxpayers usually get later dates under the Block Extension Scheme, depending on the accounting year-end.
How does the Block Extension Scheme work for profits tax returns (N, D and M codes)?With a tax representative, the due date depends on your accounting year-end code. For 2025/26: N code no extension; D code (December) 31 August 2026 on paper, 2 October 2026 if e-filed; M code (1 January to 31 March) 30 November 2026 on paper, 30 December 2026 if e-filed. The D and M dates were later extended from 17 August and 16 November.
Can I e-file my Hong Kong profits tax return, and is it compulsory?E-filing is optional for most businesses and compulsory only for large multinational group members (Part 4AA entities) from year of assessment 2025/26. Voluntary e-filers can get a further one-month extension. Supporting documents are submitted in iXBRL format when filing electronically.
What documents must I submit with my Hong Kong profits tax return?A company or partnership with gross income must send its financial statements and a tax computation with the return. The IRD lists a certified balance sheet, the profit and loss account, the auditor's report where one is required or has been prepared, and a tax computation with supporting schedules.
Do I need audited financial statements to file a Hong Kong profits tax return?The IRD wants the auditor's report where Hong Kong or foreign law requires one or one has been prepared. Most Hong Kong companies must be audited under company law, so in practice most returns include one. A company that is validly dormant under the Companies Ordinance may file without audited statements.
How does provisional profits tax work in Hong Kong?Provisional profits tax is an advance payment charged for a year of assessment, calculated from the previous year's assessed profits. It is then 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.
How can I hold over (reduce) my provisional profits tax?You can apply in writing to pay less or none of your provisional profits tax on prescribed grounds, most commonly if profits for the year are likely to be below 90% of the base figure. Apply at least 28 days before the due date or within 14 days after the demand note is issued, whichever is later.
What tax reduction did the 2026-27 Budget give to Hong Kong businesses?The 2026-27 Budget provides a one-off 100% reduction of profits tax for year of assessment 2025/26, capped at HK$3,000 per business. It applies to the final tax, not to provisional tax, and needs no application. Profits tax rates were not changed. The legislation was passed on 13 May 2026 and gazetted on 22 May 2026.
How large were the one-off profits tax reductions in recent years?Each recent Budget has cut the final tax by 100% up to a ceiling: HK$20,000 for 2019/20, HK$10,000 for 2020/21 and 2021/22, HK$6,000 for 2022/23, HK$3,000 for 2023/24, HK$1,500 for 2024/25, and HK$3,000 for 2025/26.
How does an offshore profits claim work in Hong Kong?An offshore claim says that some or all profits did not arise in or derive from Hong Kong, so they are outside profits tax. You exclude them in the tax computation and report them in the return. The IRD can then make enquiries, and it is up to the taxpayer to prove the source with documents.
What happens when the IRD questions my offshore profits claim?The IRD assessor has power to ask for full information on any matter affecting tax liability, including detailed questions about how a transaction was carried out. You should respond with documents, not assertions. If the claim is rejected you can object within one month, and wrongly claiming offshore status can lead to additional tax.
Does it matter where a Hong Kong company's directors make decisions when claiming offshore profits?It is a factor but usually not the deciding one. The IRD and the courts look first at the operations that actually earned the profit and where they took place. The place where day-to-day investment or business decisions are taken is only one factor, so directors abroad do not by themselves make profits offshore.
What is Hong Kong's FSIE regime for foreign-sourced income?The FSIE regime can tax four types of foreign-sourced passive income when received in Hong Kong by members of multinational groups: dividends, interest, disposal gains and IP income. It started on 1 January 2023, with disposal gains on non-equity assets added from 1 January 2024. Exceptions such as economic substance can keep the income exempt.
What economic substance do I need to keep foreign dividends or interest exempt under the FSIE rules?A multinational group entity must show adequate substance in Hong Kong in the year the income accrues. A pure equity-holding entity needs adequate human resources and premises and must meet filing duties. Other entities need an adequate number of qualified employees and operating expenditure. The IRD sets no minimum numbers.
How does the participation exemption work for foreign dividends under the FSIE rules?A Hong Kong resident group entity (or a non-resident with a Hong Kong permanent establishment) can keep a foreign dividend or share disposal gain exempt if it has continuously held at least 5% of the investee for at least 12 months before the income accrues. A subject-to-tax condition applies, or tax relief switches to a credit.
Does the FSIE regime apply to my small Hong Kong company?Only if the company is a member of a multinational enterprise group, meaning a group with at least one entity or permanent establishment outside the ultimate parent's jurisdiction. A Hong Kong company owned by individuals with no foreign branch or subsidiary is outside the FSIE rules. A foreign parent or overseas subsidiary generally brings you in.
Which business expenses are deductible for Hong Kong profits tax?Expenses are deductible to the extent they are incurred in producing chargeable profits, and are not of a capital nature or private. Typical allowable items include rent of business premises, staff costs, bad debts, repairs, trade mark registration, MPF contributions for employees, and approved charitable donations within limits.
What expenses cannot be deducted for Hong Kong profits tax?The law prohibits deductions for domestic or private expenses, capital losses and expenditure, insurance recoveries, rent of premises not used for the business, profits tax and other IRO taxes, and remuneration or interest paid to a sole proprietor or partners and their spouses.
How are depreciation allowances calculated in Hong Kong?Accounting depreciation is not deductible. Instead the IRD gives statutory allowances: plant and machinery get a 60% initial allowance plus annual allowances of 10%, 20% or 30% on a reducing balance; industrial buildings 20% plus 4%; commercial buildings 4% a year. Certain assets can be written off immediately.
Does Hong Kong offer a super deduction for R&D spending?Yes. Qualifying expenditure on domestic R&D activities gets a 300% deduction on the first HK$2 million and 200% on the rest, with no overall cap on the enhanced deduction. What counts as qualifying is defined in detail in the Ordinance.
Can I carry forward tax losses in Hong Kong?Yes. A trading loss in a year is carried forward and set off against future profits of the same business. There is no stated time limit in the IRD's guidance. Losses are not carried back. Anti-avoidance rules may restrict use, for example after a change in ownership.
Can my company deduct my salary and director's fees?For a limited company, yes: salary and director's fees that are genuine and incurred for the business are deductible, and the director reports them under salaries tax. For a sole proprietor or partnership, the owner's own pay is not deductible. Related MPF contributions for owners have specific limits.
How is a director's salary or fee taxed in Hong Kong?Directors' salaries, fees, bonuses and similar pay for an office or employment in Hong Kong are charged to salaries tax. Tax is the lower of progressive rates (2% to 17%) on net chargeable income and the standard rate on net income (15% on the first HK$5 million, 16% above) for 2025/26.
What are the salaries tax rates in Hong Kong?For 2025/26 the progressive scale is 2%, 6%, 10%, 14% on successive HK$50,000 bands, then 17% on the rest. Tax cannot exceed the standard rate on net income before allowances: 15% on the first HK$5 million and 16% above. The lower of the two results applies.
What are the personal allowances for Hong Kong salaries tax?For 2025/26 the basic allowance is HK$132,000, married person's HK$264,000 and each child HK$130,000. From 2026/27 these rise to HK$145,000, HK$290,000 and HK$140,000 respectively, under the 2026-27 Budget law gazetted on 22 May 2026. The IRD applies new amounts to provisional tax automatically.
What is the deadline for the employer's return (BIR56A and IR56B) in Hong Kong?The IRD normally issues the Employer's Return (BIR56A) on the first working day of April, and you must file it within one month of issue together with a Form IR56B for each employee. For the year ended 31 March 2026 the forms were issued on 1 April 2026. Employers must keep payroll records for at least 7 years.
When must I notify the IRD that I have hired a new employee (IR56E)?Within 3 months of the employee starting work, an employer must give the IRD Form IR56E for a new employee who is likely to be chargeable to salaries tax. Give the employee a copy of the form. A fine of up to HK$10,000 can follow if you fail to file without reasonable excuse.
What must I file when an employee resigns or leaves Hong Kong (IR56F and IR56G)?File IR56F at least 1 month before an employee's employment ends. File IR56G at least 1 month before an employee is due to leave Hong Kong for more than a month. After IR56G, do not pay money or money's worth to that employee for one month from the notice without the Commissioner's written consent.
Are MPF contributions tax deductible in Hong Kong?Yes, within limits. An employer can deduct contributions up to 15% of each employee's total emoluments. An employee's mandatory contributions are deductible against salaries tax up to HK$18,000 a year (2025/26), and the self-employed can deduct up to HK$18,000. Tax-deductible voluntary contributions have a combined HK$60,000 cap.
How much stamp duty do I pay when transferring shares in a Hong Kong company?Since 17 November 2023, stamp duty on Hong Kong stock is 0.1% on each bought note and 0.1% on each sold note, so 0.2% in total, calculated on the consideration or value. The instrument of transfer carries a fixed HK$5. Gifts of shares carry HK$5 plus 0.2% of value.
What stamp duty applies to buying property or signing a lease in Hong Kong?For property instruments signed on or after 26 February 2026, ad valorem duty runs from a flat HK$100 up to HK$4 million to 4.25% for values between about HK$21.7 million and HK$100 million. Above HK$100 million, residential property is charged more (6.5% beyond about HK$109.6 million); non-residential stays at 4.25%. Leases pay 0.25% to 1% of rent depending on term.
Do I have to tell the IRD I am chargeable to tax if I have not received a return?Yes. Anyone chargeable to profits, salaries or property tax who has not received a return must notify the IRD in writing within 4 months after the end of the basis period for that year of assessment. A person who ceases a business must notify the IRD within one month of ceasing.
Do I have to withhold tax when paying royalties to a non-resident from Hong Kong?Yes, if the royalty is for the use of IP in Hong Kong. The non-resident is chargeable to profits tax on 30% of the royalty and the Hong Kong payer must deduct the tax when paying. That gives an effective rate of about 4.95% for a corporation at 16.5%, or 100% of the payment is taxed if paid to certain associates.
How does property tax work for rental income in Hong Kong?Property tax is charged on the owner of land or buildings in Hong Kong at the standard rate of 15% on net assessable value. Net assessable value is the rent received less rates paid by the owner and a 20% statutory allowance for repairs and outgoings. Companies that rent property are usually under profits tax instead.
How do I get a Hong Kong certificate of resident status for a tax treaty?Apply to the IRD for a Certificate of Resident Status (CoR) through the Business Tax Portal, Individual Tax Portal or Tax Representative Portal. There is no fee, and the IRD's target is 21 working days. It is issued only to Hong Kong residents and only for countries whose treaty with Hong Kong is already effective.
Does Hong Kong have a tax treaty with Mainland China and Malaysia?Yes. Hong Kong signed an arrangement with Mainland China on 21 August 2006 and a comprehensive double taxation agreement with Malaysia on 25 April 2012, which took effect in Hong Kong from year of assessment 2013/14. The IRD lists all agreements and their effective dates. Check the treaty text for the rate that applies.
Does my small Hong Kong company need transfer pricing documentation?Possibly not. A Hong Kong entity need not prepare a master file and local file if it meets any two of three tests: revenue not above HK$400 million, assets not above HK$300 million, or no more than 100 employees. A local file is also not needed for a transaction type below its threshold. The arm's-length principle still applies.
What are the penalties for filing a Hong Kong profits tax return late?Late filing can lead to prosecution under section 80 or additional tax under section 82A, up to three times the tax undercharged. In the IRD's guidance, a first offence is usually penalised at about 10% of the tax undercharged, or 20% if the return is filed after two or more estimated assessments. Repeat offences cost more.
What is an estimated assessment and what should I do if I receive one?An estimated assessment is a tax charge the IRD raises on its own estimate when a return has not been filed by the due date. Do not ignore it: file the correct return and lodge a written objection within one month of the notice date, and ask to hold over the tax if appropriate.
How long do I have to object to a Hong Kong tax assessment?One month from the date of the notice of assessment. The notice of objection must be in writing and state the grounds precisely. The IRD can extend the time if you were prevented by absence from Hong Kong, sickness or other reasonable cause. If the objection fails you can appeal to the Board of Review, also within one month.
How far back can the Hong Kong IRD audit my company?The IRD's field audit and investigation normally cover the 6 years of assessment before the year the investigation starts. Where there is fraud or wilful evasion, it extends to 10 years. Ordinary additional assessments are generally limited to 6 years after the year of assessment ends.
How long must I keep business records in Hong Kong for tax?At least 7 years after the completion of the transactions they relate to. Records must be in English or Chinese and sufficient to work out assessable profits. Failing to keep adequate records can bring a fine of HK$100,000. This answer is only a pointer; the bookkeeping section covers the procedure.
Does a dormant Hong Kong company still have tax obligations?Yes. A dormant company must still file any profits tax return the IRD issues, though the IRD accepts returns without audited statements if the company has validly become dormant under the Companies Ordinance. Business registration continues until deregistration, and records must still be kept.
Do I need IRD approval to deregister a Hong Kong company?Yes. Before applying to the Companies Registry to deregister, you must obtain a Notice of No Objection from the IRD under section 88B. Apply with Form IR1263 and a HK$270 fee. The IRD aims to reply within 21 working days and issues the notice only if there are no outstanding tax matters.
Does Hong Kong's global minimum tax (Pillar Two) affect my SME?No, unless your group is very large. The global minimum tax and Hong Kong minimum top-up tax apply only to multinational groups with annual consolidated revenue of EUR 750 million or more in at least two of the four preceding fiscal years. They apply from fiscal years beginning on or after 1 January 2025.
How do I change my tax representative in Hong Kong?A new tax representative needs your signed written authorisation (email authorisation is not accepted), and the IRD must be told of the change. For block extension, representatives notify the IRD of new and ceased clients, filed electronically through the Tax Representative Portal from April 2026. A company with a Business Tax Portal account can update its agent online.