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.
What it is. Pillar Two sets a 15% minimum effective tax rate on large multinational groups in each jurisdiction where they operate. Hong Kong enacted the law on 6 June 2025: the GloBE rules (an income inclusion rule and an undertaxed profits rule) plus a Hong Kong minimum top-up tax (HKMTT) to collect any top-up tax on low-taxed Hong Kong entities itself.
Who is in scope. Only an in-scope MNE group: one with annual consolidated revenue of EUR 750 million or more in at least two of the four fiscal years immediately before the current year. If your group is below that, the rules do not apply to you at all.
When. The IIR and HKMTT apply for fiscal years beginning on or after 1 January 2025.
Administration. Part 4AA entities of in-scope groups must register for a group code, file top-up tax returns, and are required to e-file profits tax returns from 2025/26. The IRD launched top-up tax return filing under the Pillar Two Portal on 26 October 2026.
For a typical SME: nothing to do for Pillar Two. Other rules, such as the FSIE regime and transfer pricing, are separate and have their own tests. If your company is a subsidiary of a large foreign group, ask the group's tax team whether your entity is a constituent entity.
Legal basis
- Inland Revenue Ordinance (Cap. 112), Part 4AA and Schedules 61–64
Sources
Applies to Fiscal years beginning on or after 1 January 2025 · Last reviewed 29 October 2026
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.
Related questions
- 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 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.
- 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.
- 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 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.