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.
Section 17 of the Inland Revenue Ordinance bars deductions for, among others:
- Domestic or private expenses, and any sum not spent to produce the profits.
- Any loss or withdrawal of capital, improvements, and other capital expenditure (though depreciation allowances may be available separately).
- Sums recoverable under insurance or an indemnity.
- Rent of, or expenses on, premises not occupied or used to produce the profits.
- Taxes under the Inland Revenue Ordinance (except salaries tax paid on employees' remuneration).
- Any remuneration or interest on capital or loans paid to the sole proprietor or to partners, or their spouses, and MPF contributions for them except as allowed (for example the self-employed mandatory contribution, up to HK$18,000).
Common practical issues
- Director's salary paid by a company is deductible if genuine and wholly for business, but personal expenses paid by the company are not.
- Entertainment, travel and "personal use" costs are often adjusted; keep records showing business purpose.
- Fines and penalties are not specifically listed in the IRD's guide, but they usually fail the "incurred in producing profits" test.
- Provisions that are not actual losses, for example general bad-debt provisions, may be disallowed until actual write-off.
Your tax computation adds these back to accounting profit.
Legal basis
- Inland Revenue Ordinance (Cap. 112), s.17
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 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.
- 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.
- 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.