Tax compliance service
in Hong Kong.

Hong Kong applies a two-tier profits tax system, with rates that vary by business type:

• Corporations: 8.25% on the first HKD 2 million of assessable profits and 16.5% above
• Unincorporated businesses: 5% on the first HKD 2 million and 15% above

Only one entity within a corporate group may access the lower rate.

A domestic minimum top-up tax (DMTT) applies under the OECD BEPS Pillar Two framework to large multinational enterprise groups with annual consolidated revenues of EUR 750 million or above. Where the effective tax rate on Hong Kong profits falls below 15%, a top-up tax is imposed to reach that minimum level. The guide to corporate income tax (profits tax) in Hong Kong provides a detailed overview of Hong Kong’s profits tax system.

Hong Kong taxes only profits that arise in or are derived from Hong Kong. Income generated entirely offshore is generally not subject to profits tax, but the exemption is not automatic. Companies must file an offshore claim with the Inland Revenue (IRD) and provide supporting evidence that the income is sourced outside Hong Kong.

The Foreign-Sourced Income Exemption (FSIE) regime introduced an important qualification for multinational enterprise entities. Passive income including dividends, interest, intellectual property income and disposal gains may still be taxed unless the entity meets economic substance requirements or qualifies for a participation exemption. The offshore claim process and documentation requirements are covered in the guide to tax exemption of foreign-sourced income in Hong Kong.

Hong Kong imposes no withholding tax on dividends, meaning profits can be distributed to an overseas parent or shareholder without deduction at source. There are also no foreign exchange controls, so funds can be transferred freely in any currency. The main consideration is ensuring that the distributing company has sufficient distributable reserves, as dividends can only be paid out of profits available for distribution.

If a Hong Kong company acts as a regional holding structure, it may also benefit from Hong Kong’s network of comprehensive double taxation agreements (CDTAs) when receiving dividends or royalties from subsidiaries in treaty jurisdictions. For a detailed guide on the mechanics and tax considerations, see repatriating profits from an overseas subsidiary to a Hong Kong holding company.

Hong Kong’s profits tax framework includes a number of structural reliefs that can reduce the effective tax burden. Key entitlements include:

• Capital allowances: deductions for qualifying expenditure on plant, machinery and industrial or commercial buildings
• R&D super deduction: 300% on the first HKD 2 million of qualifying R&D expenditure conducted in Hong Kong and 200% thereafter
• Loss carry-forward: unused losses can be carried forward indefinitely and offset against future profits from the same trade
• Double tax agreement (DTA) credits: relief for foreign taxes paid on income covered by Hong Kong’s treaty network, currently covering over 50 jurisdictions

Hong Kong does not offer broad industry-based tax holidays. Incentives are delivered through the rate structure, the territorial tax system and targeted deductions rather than discretionary exemptions.

Hong Kong companies have two principal annual filings with the IRD:

• Profits tax return (PTR): issued to all companies on 31 March each year and due within one month, accompanied by audited financial statements and a tax computation. The first PTR is issued 18 months after the business commencement. Late filing without an approved extension results in penalties.
• Employer’s return (Form BIR56A): issued at the beginning of April each year and due within one month, reporting remuneration and pensions paid during the previous calendar year. A separate Form IR56B is required for each employee.

Companies whose financial year does not end in March can request deadline extensions from the IRD through a tax representative.

Three international reporting frameworks apply in Hong Kong:

• FATCA (US Foreign Account Tax Compliance Act): Hong Kong financial institutions identify and report US account holders to the IRD, which exchanges the information with the US Internal Revenue Service (IRS)
• CRS (Common Reporting Standard): Hong Kong financial institutions report non-resident account holders to the IRD for exchange with over 100 participating jurisdictions
• Country-by-country reporting (CbCR): MNE groups with annual consolidated revenues of HKD 6.8 billion or above must file an annual CbC report with the IRD on income, taxes and business activities across all jurisdictions

FATCA and CRS obligations apply mainly to financial institutions, while CbCR applies to qualifying MNE groups regardless of sector.