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.
Hong Kong's transfer pricing documentation rules (Part 9A of the Ordinance, explained in the IRD's practice note on documentation) apply to entities in a group.
Exemption by size. An entity need not prepare both master file and local file if it meets any two of:
- Revenue for the accounting period not above HK$400 million.
- Total assets at year-end not above HK$300 million.
- Average employees not above 100.
Exemption by transaction type (no local file for a type of related-party transaction if it does not exceed):
| Type | Threshold |
|---|---|
| Transfers of property (other than financial assets and intangibles) | HK$220 million |
| Financial assets | HK$110 million |
| Transfers of intangibles | HK$110 million |
| Other transactions | HK$44 million |
If no type of controlled transaction needs a local file, the master file is not required either.
What the exemptions do not cover
- Transfer pricing must still follow the arm's-length principle, and the IRD can adjust profits and impose penalties for a failure to follow the rules.
- You should keep records to support intragroup pricing, because the IRD's information powers remain.
Check your group's structure with an adviser; the group-level master file and country-by-country reporting rules apply to larger groups.
Legal basis
- Inland Revenue Ordinance (Cap. 112), Part 9A, s.58C
- Inland Revenue Ordinance (Cap. 112), s.50AAF
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 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 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.
- 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.
- 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.