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.
The lower rate on the first HK$2 million is designed so that a group cannot multiply the threshold by splitting itself into many entities.
How it works
- If, at the end of the basis period, an entity has one or more connected entities, the two-tiered rates apply only to the one nominated.
- The nomination is made in the profits tax return of the nominated entity. Once made it is irrevocable for that year, and it works only if no other connected entity has nominated for the same year.
- Connection is generally based on owning or controlling more than 50% of the shares, voting rights or capital or profits, directly or indirectly, or common control. The IRD's guidance explains the detailed tests.
- A sole proprietor who nominates has to list the names and business registration numbers of all connected entities in supplementary form SP1.
If you get it wrong
Making an incorrect declaration without reasonable excuse can attract heavy penalties, and the IRD will raise additional assessments as if the lower rates did not apply.
Practical tip: nominate the entity expected to have the largest profits up to HK$2 million, and review each year, because the position is tested year by year. A group's holding company and its loss-making subsidiaries are still treated as connected.
Legal basis
- Inland Revenue Ordinance (Cap. 112), Schedule 8
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
- 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.