Tax Guide

Hong Kong Tax System Explained.

One of the most business-friendly tax regimes in the world. Territorial taxation, low rates, no VAT, no capital gains — and what it means for your company.

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First HK$2M Profits

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Above HK$2M Profits

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0%

Capital Gains Tax

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0%

VAT / GST

Core Principle

Territorial Taxation

Hong Kong operates on a territorial basis of taxation. This means only profits arising in or derived from Hong Kong are subject to profits tax. Income sourced outside Hong Kong is generally not taxable, regardless of whether it is remitted to Hong Kong.

This is fundamentally different from worldwide taxation systems (like the US or UK), where residents are taxed on their global income. For businesses that operate internationally, Hong Kong's territorial system can result in significant tax savings.

Profits Tax

Two-Tier Profits Tax System

Since the 2018/19 tax year, Hong Kong applies a two-tier profits tax regime for corporations:

Assessable Profits
Corporation Rate
Unincorporated Rate
First HK$2,000,000
8.25%
7.5%
Above HK$2,000,000
16.5%
15%

The two-tier rates are available to one nominated entity per group of connected entities. Other entities in the group are taxed at the standard rate on all assessable profits.

What HK Does Not Tax

Taxes That Don't Exist in Hong Kong

VAT / GST
No value-added tax or goods and services tax. Products and services are not subject to consumption tax.
Capital Gains Tax
No tax on capital gains from the sale of assets, shares, or property (for non-property trading businesses).
Withholding Tax on Dividends
No withholding tax on dividends paid to shareholders, regardless of their residency or nationality.
Estate / Inheritance Tax
Abolished in 2006. No tax on the transfer of assets upon death.
Sales Tax
No general sales tax on goods or services sold in Hong Kong.
Offshore Exemption

Offshore Profits Exemption

If your Hong Kong company earns profits from activities conducted entirely outside Hong Kong, those profits may be exempt from profits tax under the offshore claim. This is a major advantage for companies that use Hong Kong as a holding or trading hub.

To qualify, you must demonstrate that the operations generating the profits — contracts negotiated, services performed, goods sourced and delivered — all occur outside Hong Kong. The Inland Revenue Department (IRD) assesses offshore claims on a case-by-case basis.

Important: The 2023 FSIE regime now requires economic substance in Hong Kong for certain passive income (dividends, interest, IP income, disposal gains) to qualify for offshore exemption.

Deadlines

Tax Filing Deadlines

First Profits Tax Return (PTR)

18 months after incorporation

The IRD issues the first PTR approximately 18 months after your company is incorporated.

Subsequent PTR

Annually in April

After the first filing, the PTR is issued on the first working day of April each year.

Filing Deadline

1 month from date of issue

Standard deadline. Extensions available depending on your financial year-end (D-code: Nov 15, M-code: Aug 15, N-code: May 31).

Tax Payment

As assessed

Tax is payable in two installments: 75% first, 25% second. Due dates are stated on the demand note.

Connected Entities

Connected Entities Rule

The two-tier tax rate (8.25% on the first HK$2M) can only be claimed by one entity within a group of connected entities. Two entities are "connected" if one controls the other, or both are controlled by the same entity.

"Control" means holding more than 50% of the issued share capital, voting power, or capital/profit distribution rights. If you operate multiple HK companies under the same ownership, only one can benefit from the lower rate — the rest will be taxed at the standard 16.5% on all profits.

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