Hong Kong Corporate Tax: What Companies Actually Pay

Hong Kong has one of the lowest corporate tax rates in Asia. But do you know what your company actually pays?

The headline rate is 16.5%. Most small companies pay less, because the two-tier system taxes your first HKD 2 million of assessable profits at half the standard rate.

Here's how it really works.

The standard rate

Profits tax in Hong Kong is 16.5% for corporations. For unincorporated businesses, so sole traders and partnerships, it's 15%.

That rate applies to assessable profits arising in or derived from Hong Kong. It doesn't apply to offshore profits, capital gains, or income that's otherwise exempt.

For context: Singapore is 17%, the UK is 25%, the United States is 21%. Hong Kong has held a low, stable rate for decades, and the stability matters as much as the number.

The two-tier system

Since the 2018/19 tax year there have been two tiers.

For corporations: the first HKD 2 million of assessable profits is taxed at 8.25%, and everything above that at 16.5%.

For unincorporated businesses: the first HKD 2 million at 7.5%, the remainder at 15%.

So a company with HKD 5 million of assessable profits pays 8.25% on the first HKD 2 million, which is HKD 165,000, and 16.5% on the remaining HKD 3 million, which is HKD 495,000. Total HKD 660,000, an effective rate of 13.2%.

Assessable profits are not accounting profits

This trips up a lot of directors. Assessable profit is what tax is actually calculated on, and it isn't the number at the bottom of your accounts.

Your accountant starts with accounting profit and makes tax adjustments. Certain things get added back, like depreciation charged in the accounts, or entertaining costs. Other things get deducted: capital allowances, approved charitable donations, and losses carried forward from earlier years.

A consulting company I worked with had HKD 3 million of accounting profit. After capital allowances on equipment and losses carried forward from the previous year, the assessable profit was HKD 1.5 million. Same business, very different tax bill.

What's actually taxable

Hong Kong only taxes income arising in or derived from Hong Kong. That's the territorial principle, and it's the foundation of the whole system.

Usually taxable: profits from goods sourced and sold in Hong Kong, income from services performed here, rent from Hong Kong property, and interest income where it's part of your ordinary business.

Not taxable: capital gains, since there's no capital gains tax at all, dividends received from other companies, and genuinely offshore profits where you have the documentation to support the claim.

One caution. The line between a trading profit and a capital gain gets contested by the IRD. Buying and selling assets frequently, whether property or shares, can be treated as trading income however you've labelled it.

What you can deduct

Reducing assessable profits legitimately is mostly a matter of knowing what qualifies.

Deductible: staff salaries and MPF contributions, rent and office costs, professional fees for accounting and legal work, capital allowances on qualifying plant and machinery, interest on loans used for business purposes, and approved charitable donations up to 35% of assessable profits.

Not deductible: private or domestic expenses, capital expenditure (capital allowances replace it), fines and penalties, and non-business entertainment.

I once met a founder claiming his personal gym membership because he exercised before work. That one is not deductible, and neither are most of its cousins.

How much of this you actually capture depends entirely on your bookkeeping. Clean, well-categorised records make it far easier for whoever prepares your computation to claim everything you're legitimately entitled to. The accounting requirements guide covers what that looks like in practice.

Provisional tax

Hong Kong charges provisional tax alongside your final assessment, and it surprises people the first time.

Provisional tax is a prepayment of next year's expected liability, calculated on the previous year's assessable profits. The IRD sends the demand at the same time as the final assessment for the year just finished, which is why the first bill often looks about twice what you expected.

If your profits are going to be significantly lower next year, you can apply to reduce it using Form IR1121. A founder facing a 50% revenue drop after a restructuring did exactly that and avoided a completely unnecessary cash flow squeeze.

It isn't a penalty. It's an advance payment, credited against your actual liability the following year.

What Hong Kong doesn't have

One of the cleanest things about the system here is the list of taxes that simply don't exist.

No VAT. No GST. No capital gains tax. No withholding tax on dividends paid to overseas shareholders. No inheritance tax, abolished in 2006.

That simplicity is a real competitive advantage. Businesses here have far fewer tax touchpoints than in almost any comparable jurisdiction. For most companies, profits tax and salaries tax are the whole picture.

The short version

Hong Kong's profits tax system is genuinely straightforward once you can see the shape of it.

The two-tier rate means most small businesses pay an effective rate well under 16.5%. The territorial basis adds real scope for legitimate planning if your operations genuinely span more than one country.

The important part is knowing exactly what you owe and making sure your accounting supports that position.

Common questions

What's the Hong Kong corporate tax rate?

16.5% for corporations on assessable profits arising in or derived from Hong Kong, with the first HKD 2 million taxed at 8.25% under the two-tier system.

How does the two-tier rate work?

The first HKD 2 million of a corporation's assessable profits is taxed at 8.25% and the rest at 16.5%. Only one entity per associated group can use the lower rate.

Does Hong Kong have capital gains tax?

No. Although frequent buying and selling of assets can be treated as trading income by the IRD, which is taxable.

Are dividends taxable?

Dividends received by a Hong Kong company from other companies generally aren't taxable, and there's no withholding tax on dividends paid to overseas shareholders.

What's the difference between accounting profit and assessable profit?

Assessable profit starts with accounting profit and applies tax adjustments, adding back non-deductible items and deducting capital allowances, approved donations and losses brought forward.

Is Hong Kong cheaper than Singapore for tax?

The standard rate is 16.5% here against 17% there. Both have incentives and exemptions though, so your effective rate depends on your structure and the type of income.