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.
When the 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 separate answer on holding over provisional tax.
Legal basis
- Inland Revenue Ordinance (Cap. 112), Part 10A (provisional profits tax)
Sources
Applies to YA 2025/26 · 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
- 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.
- 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.