Hong Kong has one of the most straightforward corporate tax systems in the world. There is no capital gains tax. No dividend withholding tax. No VAT or GST. And if your profits are generated outside Hong Kong, there is a strong case they are not taxable here at all.
This guide is the overview of every tax obligation a Hong Kong private limited company must manage: profits tax rates, how to file company tax and when, the offshore claim, provisional tax, and the taxes that simply do not exist here. Each topic links to a dedicated guide for the detail. If you are still deciding whether to incorporate, read our guide to registering a company in Hong Kong first, or use our Is Hong Kong right for me? tool to assess your situation.
Highlights of this article
- Hong Kong uses a territorial tax system. Only profits arising in or derived from Hong Kong are subject to profits tax. Profits with a non-Hong Kong source are not chargeable if you can document the claim.
- The profits tax rate is 8.25% on the first HKD 2 million of assessable profits, and 16.5% on everything above. The two-tiered rate applies to 1 company per group.
- There is no capital gains tax, no dividend withholding tax, and no VAT or GST in Hong Kong.
- Every limited company must have its accounts audited by a Hong Kong CPA before filing the Profits Tax Return (BIR51) with the IRD. The only exception is a company that has declared itself dormant under the Companies Ordinance.
- The IRD issues the BIR51 each April, and the filing date depends on your filing code. The first return is typically issued 18 months after incorporation.
- Air Corporate offers audit and tax filing for Hong Kong companies from USD 580 / HK$4,500.
How Hong Kong profits tax works
Hong Kong taxes companies on a territorial basis. Only profits that arise in or are derived from Hong Kong are subject to profits tax. Profits earned entirely outside Hong Kong, through transactions negotiated, concluded, and performed outside the territory, are generally not taxable here.
This is fundamentally different from worldwide taxation systems (used in the US, for example), where a company is taxed on global income regardless of where it is earned.
The tax is administered by the Inland Revenue Department (IRD). Companies file annually using Form BIR51 (the Profits Tax Return). The IRD assesses the return and issues a tax demand accordingly.
The 3 conditions that trigger profits tax liability in Hong Kong are:
- The company carries on a trade, profession, or business in Hong Kong
- That trade, profession, or business generates profits
- Those profits arise in or are derived from Hong Kong
All 3 must be met. A company incorporated in Hong Kong that conducts all its business outside Hong Kong can legitimately claim that its profits are offshore, but must be able to demonstrate this.
The two-tiered profits tax rate
| Profits level | Tax rate |
|---|---|
| First HKD 2,000,000 of assessable profits | 8.25% |
| Assessable profits above HKD 2,000,000 | 16.5% |
The two-tiered rate structure has applied since the year of assessment 2018/19. It is available to 1 nominated company per group. You cannot apply the lower 8.25% rate across multiple related companies simultaneously.
For an unincorporated business (sole proprietorship or partnership), the equivalent rates are 7.5% on the first HKD 2 million and 15% above.
Example: A Hong Kong company with HKD 5 million assessable profits pays:
- HKD 2,000,000 × 8.25% = HKD 165,000
- HKD 3,000,000 × 16.5% = HKD 495,000
- Total profits tax: HKD 660,000
How to file company tax in Hong Kong
Every Hong Kong private limited company completes the following steps each year. This section is the overview, and the linked guides carry the detail.
Step 1: Prepare audited financial statements
All limited companies must have their accounts audited by a Hong Kong Certified Public Accountant (CPA) registered with the HKICPA. The audit must cover the full financial year. Accounts must comply with Hong Kong accounting standards (HKFRS or SME-FRS), and audits must follow Hong Kong Standards on Auditing (HKSAs).
The audit must be completed before the Profits Tax Return can be filed. There is no revenue-based exemption: the IRD no longer lets small companies with gross income of HKD 2 million or less file without supporting documents. The one exception is a company that has declared itself dormant under the Companies Ordinance (Cap. 622) by delivering a special resolution to the Companies Registrar. A dormant company is exempt from the audit, and the IRD accepts its return without audited financial statements. Air Corporate provides company audit services from USD 580 / HK$4,500.
Step 2: File the Profits Tax Return (BIR51)
The IRD issues Form BIR51 to active companies on 1 April each year. A newly incorporated company receives its first return approximately 18 months after incorporation, and has 3 months from the issue date to file it. Dormant companies with zero revenue must still file a return noting nil assessable profits.
The filing date depends on your filing code, which follows your financial year end, and the IRD sets the dates each year. For the 2025/26 return year, for companies with a tax representative on the block extension scheme:
| Filing code | Financial year end falling in | Paper filing due | E-filing due |
|---|---|---|---|
| N | 1 April to 30 November 2025 | One month from the issue date, no block extension | 4 June 2026 |
| D | December 2025 | 31 August 2026 | 2 October 2026 |
| M | 1 January to 31 March 2026 | 16 November 2026 | 16 December 2026 |
| M, with a loss | 1 January to 31 March 2026 | 1 February 2027 | 1 February 2027 |
Source: the IRD block extension letter for 2025/26 returns and its D code addendum of 14 July 2026. These dates apply to the 2025/26 return year only. For the full filing process, the supplementary forms and the block extension scheme, see our profits tax return guide. For the difference between your Annual Return and Profits Tax Return deadlines, see our Annual Return vs Profits Tax Return guide.
The return must be accompanied by audited financial statements, a tax computation, and any supplementary schedules required by the IRD.
Step 3: Pay profits tax
The IRD issues a tax demand after processing the return. Payment is due by the date specified on the demand. Late payment attracts a 5% surcharge on the outstanding tax, with a further 10% surcharge if payment remains outstanding after 6 months. Missing the filing date can lead to an estimated assessment and penalty action under section 80 or 82A of the Inland Revenue Ordinance. The profits tax guide sets out the penalties.
Step 4: Keep records for 7 years
The IRD requires companies to retain all business records, including invoices, contracts, bank statements, and receipts, for a minimum of 7 years. Records must be kept in either English or Chinese. Failure to maintain adequate records is an offence under the Inland Revenue Ordinance and can result in fines. For the full list of annual obligations beyond tax, see our annual requirements guide for Hong Kong companies.
Annual tax calendar
| Date / Trigger | Obligation | Who handles it |
|---|---|---|
| Financial year end | Year closes; accounting records must be complete | Accountant |
| After year end | Audited financial statements prepared and signed | CPA auditor |
| 1 April (each year from year 2) | IRD issues the Profits Tax Return (BIR51) | IRD |
| By the date for your filing code (see the table above) | File BIR51 with audited accounts and tax computation | Accountant or tax representative |
| Tax demand received | Pay profits tax (final + provisional) by the due date | Directors |
| Before provisional tax due date | Apply to hold over provisional tax if profits are declining | Accountant |
| Ongoing, for 7 years | Retain all financial records, invoices, contracts | Directors |
First year exception: the first Profits Tax Return is not issued in April. The IRD typically issues it approximately 18 months after incorporation, regardless of year end. A company incorporated in June 2024 with a 31 December year end would typically receive its first BIR51 around December 2025.
How to calculate your Hong Kong profits tax: a worked example
The actual amount you pay depends on the assessable profits figure, which is your accounting profit after adding back disallowed items and applying capital allowances. The step-by-step method is in our profits tax calculation guide. Here is a short example for a company with HKD 5 million in revenue.
The scenario
A Hong Kong private limited company provides software consulting services to overseas clients. It has been incorporated for 2 years and uses a 31 March financial year end.
Financial year: 1 April 2025 to 31 March 2026
| Item | HKD |
|---|---|
| Total revenue | 5,000,000 |
| Staff salaries | (1,200,000) |
| Office rent (Hong Kong) | (240,000) |
| Professional fees (legal, accounting, audit) | (120,000) |
| Business travel | (80,000) |
| Software subscriptions and tools | (60,000) |
| Laptop and equipment purchases | (150,000) |
| Client entertainment expenses (incurred for business) | (40,000) |
| Accounting profit before tax | 3,110,000 |
Check: HKD 5,000,000 - (1,200,000 + 240,000 + 120,000 + 80,000 + 60,000 + 150,000 + 40,000) = HKD 5,000,000 - HKD 1,890,000 = HKD 3,110,000.
Step 1: Adjust for capital expenditure
The HKD 150,000 spent on laptops is capital expenditure, so it is added back to accounting profit. Computer hardware qualifies as a prescribed fixed asset under section 16G of the Inland Revenue Ordinance, which gives a 100% write-off in the year of purchase. There is no pool and no 30% rate for computers.
The client entertainment of HKD 40,000 is assumed to have been incurred in producing chargeable profits with proper records, so it stays deductible.
| Adjustment | HKD |
|---|---|
| Accounting profit | 3,110,000 |
| Add back: laptops and equipment (capital expenditure) | +150,000 |
| Adjusted profit | 3,260,000 |
| Less: section 16G deduction on laptops (100%) | (150,000) |
| Assessable profits | 3,110,000 |
If the company had bought plant and machinery that goes into a pool instead, it would claim a 60% initial allowance plus an annual allowance of 10%, 20% or 30% on the reduced value, including in year 1. The profits tax guide shows that calculation.
Step 2: Apply the two-tiered tax rates
| Profits band | Amount | Rate | Tax |
|---|---|---|---|
| First HKD 2,000,000 | 2,000,000 | 8.25% | 165,000 |
| Above HKD 2,000,000 (3,110,000 - 2,000,000) | 1,110,000 | 16.5% | 183,150 |
| Total profits tax | 348,150 |
Effective tax rate: HKD 348,150 / HKD 5,000,000 = 7.0% of revenue (or 11.2% of assessable profits).
Step 3: Provisional tax for next year
The IRD will also bill provisional profits tax for the 2026/27 year alongside the 2025/26 final assessment. By default, this equals 100% of the 2025/26 final liability: HKD 348,150. If next year's profits are expected to be significantly lower, apply to hold over the provisional tax before the payment deadline.
Total tax demand (both years billed together): HKD 348,150 (final 2025/26) + HKD 348,150 (provisional 2026/27) = HKD 696,300.
This is why the first profits tax payment in year 2 of operation often feels large: it covers two years simultaneously. Budget for this from year one. For the 90% rule, application forms and deadlines, see our provisional tax holdover guide.
The offshore profits claim: non-Hong Kong source profits
The most important tax advantage for foreign-founded Hong Kong companies is that profits arising entirely outside Hong Kong are not chargeable to profits tax. This is not a 0% tax rate. It follows from the territorial source principle, and for the details see our guide to the offshore tax exemption in Hong Kong.
The claim is not automatic. You must make it when filing the Profits Tax Return and provide documentation that supports the offshore nature of your business operations. The IRD decides whether to accept it.
What qualifies as offshore profits?
The IRD applies the source of profits test: where did the profit-generating activity actually take place? The key factors are:
- Where contracts are negotiated and concluded
- Where purchase orders and sales orders originate
- Where goods are shipped from and to
- Where services are physically performed
- Where key business decisions are made
If all of these occur outside Hong Kong, the profits are offshore. The company's registered address in Hong Kong, its directors' nationalities, and where its bank account is held are not determinative. The IRD guide to the territorial source principle explains the test.
Typical qualifying profile: A Hong Kong company whose founder is based overseas, whose customers are overseas, whose suppliers are overseas, and whose transactions are concluded entirely outside Hong Kong.
Documentation required: The IRD may issue a query requesting evidence of the offshore nature of operations. Maintain contracts, invoices, email correspondence, and shipping records showing where transactions were executed. Your accountant or tax representative prepares the claim with you.
The FSIE regime for passive income
From 1 January 2023, Hong Kong introduced the Foreign-Sourced Income Exemption (FSIE) regime for multinational enterprise (MNE) groups. Under FSIE, foreign-sourced interest, dividends, intellectual property income and gains on disposal of equity interests received in Hong Kong by an MNE entity are taxable unless the entity meets the exemption conditions, such as the economic substance requirement. From 1 January 2024, the regime also covers disposal gains on other assets.
For most small and medium-sized foreign-founded companies that are not part of an MNE group, FSIE does not apply. If your company is part of a group with entities in multiple jurisdictions, seek specific tax advice on how FSIE interacts with your structure. See the IRD page on the FSIE regime.
Deductible expenses and capital allowances
Assessable profits are calculated after deducting expenses incurred in the production of chargeable profits, such as salaries, rent, professional fees and business travel. Capital expenditure is not deductible as an expense. Instead, computers and software are written off 100% in the year of purchase under section 16G, while other plant and machinery goes into a pool with a 60% initial allowance and annual allowances of 10%, 20% or 30%.
Client entertainment is deductible to the extent it is incurred in producing chargeable profits and is reasonable. Foreign tax is not deductible. For the full list of deductible and non-deductible expenses and the capital allowance rules, see the profits tax calculation guide linked above.
Taxes that do not exist in Hong Kong
This is one of the most important sections for founders considering Hong Kong incorporation:
| Tax | Status in Hong Kong |
|---|---|
| Capital gains tax | Does not exist. Gains on sale of assets, investments, and property are not taxed. |
| Dividend withholding tax | Does not exist. Dividends paid by a HK company to shareholders are not taxed. |
| VAT / GST | Does not exist. No sales tax on goods or services. |
| Inheritance tax | Abolished in 2006 |
| Net wealth tax | Does not exist. |
The absence of capital gains tax means founders selling their Hong Kong company or its assets are not taxed on the gain in Hong Kong. The absence of dividend withholding tax means you can distribute profits to shareholders anywhere in the world without a Hong Kong-level deduction. For a full breakdown of how dividends are treated, see our guide to dividend income in Hong Kong. Note that foreign-sourced dividends received by an MNE entity in Hong Kong fall under the FSIE regime described above.
How provisional profits tax works
Hong Kong companies pay profits tax in advance through provisional profits tax. This is not an additional tax. It is a prepayment toward the following year's tax liability.
When the IRD issues your profits tax assessment, it includes 2 components:
- Final profits tax for the completed year of assessment
- Provisional profits tax for the current year (typically 100% of the preceding year's final liability)
Both are billed together in the same tax demand, and the provisional tax is offset against the following year's final assessment. If your current year profits are expected to be significantly lower than the previous year, you can apply to the IRD to hold over the provisional profits tax. See the provisional tax holdover guide linked above for the application process.
Other taxes to be aware of
Stamp duty
Stamp duty applies to:
- Hong Kong stock transfers: 0.2% of the consideration (0.1% each from buyer and seller)
- Property transactions: ad valorem stamp duty on a graduated scale that depends on the type of property and the date of the instrument. The scales changed on 26 February 2026, so check the current rates in the IRD stamp duty rate tables before relying on a figure.
For Hong Kong stock, contract notes must be stamped within 2 days of the sale or purchase if effected in Hong Kong (30 days if effected elsewhere), and an instrument of transfer must be stamped before execution if executed in Hong Kong (within 30 days if executed outside Hong Kong). For a detailed breakdown, see our stamp duty guide.
Property tax
A flat 15% property tax applies to the net assessable value of Hong Kong properties let by companies (rental income less a standard 20% deduction for repairs and maintenance). Companies can elect to offset property tax against profits tax liability, which effectively eliminates double taxation for most businesses.
Employer MPF contributions and employee costs
Every Hong Kong company with employees must contribute to the Mandatory Provident Fund (MPF). The mandatory contribution rate is 5% of each employee's relevant income per month, capped at HKD 1,500 per month per employee (based on the monthly income cap of HKD 30,000). Since 1 May 2025, employers can no longer use MPF contributions to offset severance or long service payments.
See our MPF payments guide for contribution deadlines. Employers must also pay at least the statutory minimum wage, which is HK$43.1 per hour from 1 May 2026 (see our minimum wage guide), and file an Employer's Return each year (see our Employer's Return guide).
Double taxation agreements
Hong Kong has signed Comprehensive Double Taxation Agreements (CDTAs) with more than 50 jurisdictions, including the UK, Germany, France, Singapore, Australia, and Mainland China. The network keeps growing, so check the IRD list of CDTAs concluded for the current number and each treaty's status. CDTAs prevent the same income from being taxed twice: once in Hong Kong, once in the treaty partner country.
CDTAs also set maximum withholding tax rates that treaty partners can impose on dividends, interest, and royalties. Although Hong Kong itself imposes no withholding tax on outbound payments, the treaties protect income flowing in the other direction. For how to claim reduced rates, see our double taxation agreements guide. To claim DTA benefits, you need a Certificate of Resident Status from the IRD.
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