Hong Kong's Corporate Tax Rate in 2026: A Beginner's Guide

Hong Kong’s corporate tax system is one of the simplest and most business-friendly in Asia. With a two-tiered tax rate and no tax on foreign-sourced income, it’s a major draw for entrepreneurs, SMEs, and global companies looking to keep tax liabilities low.

Unlike many jurisdictions, Hong Kong only taxes profits earned from local business activities and offers exemptions, deductions, and incentives to support business growth.

This guide covers what corporate tax works in Hong Kong in 2026, who needs to pay, how rates are applied, and what businesses must do to stay compliant with IRD requirements.

In Hong Kong, corporate tax is officially called profits tax. This applies to a company’s assessable profits, which refers to taxable income earned from business activities carried out in Hong Kong.

The city applies a two-tiered profits tax rate system, where a lower rate is applied to the first portion of taxable profits, and the standard rate is applied to the remainder.

These rates apply only to profits arising in Hong Kong. Under the territorial tax system, profits sourced entirely outside Hong Kong may be exempt from profits tax.

Hong Kong also does not impose capital gains tax, and there is generally no withholding tax on dividends or interest.

Profits tax applies to any trade, profession or business that earns profits arising in or derived from Hong Kong. What matters is the source of the profits, not where the business is incorporated or where the owners reside.

Businesses commonly subject to profits tax include:

• Hong Kong-incorporated companies
• Overseas companies that carry on business in Hong Kong and earn locally sourced profits
• Unincorporated businesses such as sole proprietorships and partnerships

Profits that arise entirely outside Hong Kong may be exempt, but a business must submit an offshore profits claim with supporting documentation.

Hong Kong adopts a territorial approach to taxation, meaning profits tax is charged only on profits that arise in or are derived from Hong Kong.

In simple terms, profits fall into two broad categories:

1. Onshore profits: Income generated from activities carried out in Hong Kong. These are taxable.
2. Offshore profits: Income where the profit-generating activities, such as contract negotiation, service delivery, or business decisions, take place entirely outside Hong Kong. These profits may qualify for tax exemption if the business submits a supporting offshore profits claim.

➡️ For example:

If a Hong Kong company sells goods exclusively to overseas customers and the key profit-generating activities, such as contract negotiation, service performance, and delivery, occur outside Hong Kong, the resulting profits may be treated as offshore. The IRD will require documentation such as contracts, invoices, correspondence, or shipping records to verify where the profit-generating activities actually took place.

Under Hong Kong’s territorial tax system, businesses may claim that their profits are offshore and not taxable if the activities that give rise to those profits take place entirely outside Hong Kong.

Offshore claims are reviewed by the IRD on a case-by-case basis, and businesses must provide evidence showing where the profit-generating activities occurred.

Typical examples include:

• Selling goods to overseas customers, where contract negotiation and delivery take place outside Hong Kong
• Providing services that are performed entirely outside Hong Kong
• Managing business operations or decision-making from outside Hong Kong

Beyond the standard profits tax rate, Hong Kong provides a number of incentives and deductions that help businesses lower their overall tax burden.

Introduced in 2023, the FSIE regime ensures that Hong Kong companies receiving certain types of overseas income can still enjoy profits tax exemption, as long as they carry out genuine business activities locally.

This regime was introduced to align with international tax standards while maintaining Hong Kong’s territorial tax system.

The exemption applies to the following types of foreign-sourced income:

• Dividends from overseas companies
• Interest income from foreign-source debt instruments
• Intellectual-property income (e.g. royalties) from rights held abroad
• Disposal gains from the sale of overseas equity interests
• Disposal gains from the sale of other foreign-sourced assets (movable or immovable) 

To benefit from FSIE, a Hong Kong entity must satisfy the relevant statutory requirements (economic substance, nexus or participation test) in the year the income accrues. This typically includes demonstrating local business activities, qualifying R&D activities, or substantial participation in the foreign entity.

Hong Kong allows profits tax deductions for capital expenditure on approved environmental protection facilities. These facilities include certain environmental protection machinery, environmentally-friendly vehicles, and designated environmental protection installations such as solar water heating systems, wind turbines, or waste-treatment systems.

Most qualifying expenditure can now be deducted in full in the year it is incurred, but the deduction only applies to the portion of the facility used in producing chargeable profits.

If an eligible facility is later sold, destroyed, or otherwise disposed of, part of the earlier deduction may be treated as taxable income depending on the sale proceeds and how the facility was used.

Hong Kong’s intellectual property tax incentive, known as the Patent Box Regime, offers a reduced 5% profits tax rate on qualifying income derived from eligible intellectual property. The regime is designed to encourage businesses to conduct R&D and commercialise IP in Hong Kong.

The concession applies to income from eligible IP such as patents, plant variety rights, and copyrighted software. Qualifying income may include royalties, licensing fees, and gains from the sale of eligible IP, but only if the IP is generated from R&D activities.

To benefit from this incentive, a business must meet the statutory requirements, elect into the regime, and keep sufficient documentation to show the link between its R&D work and the IP income claimed.

Hong Kong has signed Comprehensive Double Taxation Agreements (CDTAs) with many jurisdictions to prevent the same income from being taxed twice. These treaties help businesses clarify how cross-border income is taxed and reduce the overall tax burden when operating internationally.

These treaties provide benefits such as:

• Tax credits for foreign taxes paid
• Exemptions from certain taxes
• Lower withholding tax rates on cross-border payments such as dividends, interest, or royalties
• Clear rules on which jurisdiction has taxing rights over specific types of income

While CDTAs influence how foreign-sourced income is taxed overseas, they generally don’t affect profits tax payable in Hong Kong.

As of October 2025, Hong Kong has signed CDTAs with 54 jurisdictions, including Mainland China, the United Kingdom, Singapore, France, and the United Arab Emirates. The most recent CDTAs signed at the time of writing are with Türkiye and the Maldives, both pending entry into force.

Businesses in Hong Kong can deduct a range of expenses that are incurred in producing chargeable profits.

Common deductible items include:

• Charitable donations (up to 35% of adjusted assessable profits)
• Normal operating expenses (rent, utilities, salaries, and materials)
• Remuneration paid to employees (wages, bonuses, or other staff payments)
• Costs related to trademark registration and leased property reinstatement
• Deprecation and capital allowances for eligible fixed assets

Individual owners of sole proprietorships or partnerships may also elect for personal assessment, which allows different income sources and personal allowances to be assessed together.

Every business operating in Hong Kong must submit annual profits tax returns to the Inland Revenue Department (IRD). The process depends on your business type and financial year-end, with some additional forms required for exemptions or incentives.

The IRD issues Profits Tax Returns each April for the previous year of assessment, covering the period from 1 April to 31 March. Most businesses have one month from the issue date to file, unless an extension applies. The exact filing deadline is shown on the return notice.

For newly incorporated businesses, the first tax return typically arrives around 18 months after incorporation, once you’ve prepared a full set of accounts.

Which form to file depends on your business type:

Supplementary forms may also be required if you elect for the two-tiered tax rates, apply for specific exemptions, or report income such as intellectual property income.

You can submit your Profits Tax Return in one of two ways:

• eTAX electronic filing: File online through the IRD’s Business Tax Portal (BTP), which automatically grants a one-month extension. The IRD strongly encourages businesses to use electronic filing.
• Paper filing: To be submitted to the address printed on the Profits Tax Return itself.

Most returns must be filed within one month of the issue date, but the exact due date appears on page 1 of the Profits Tax Return.

When filing the Profits Tax Return, your submission must include:

• Completed tax computation
• Audited financial statements (for corporations with assessable profits)
• Any required supplementary forms

Taxpayers should keep all supporting documents, as the IRD may request them during a review.

Supplementary forms are required when reporting preferential tax regimes or incentives. They must be downloaded and completed electronically, and must be submitted electronically through eTAX, even if the main return is filed on paper.

While an extension of time to file may apply under the Block Extension Scheme, any request for additional time beyond that is granted only in exceptional circumstances and must include written justification and supporting evidence.

Hong Kong uses a provisional Profits Tax system, which requires businesses to prepay tax for the current year based on the assessable profits of the preceding year. This prepayment acts as an advance contribution toward the year’s final tax bill and is normally payable in one or two instalments, as stated on the tax demand note.

When the final Profits Tax assessment is issued, the provisional tax already paid is set off against the actual tax payable. Any excess is usually applied to the next year’s provisional tax, with any remaining balance refunded

 If a business expects its current-year profits to be substantially lower than the previous year, it may apply to the IRD to hold over the provisional tax, subject to statutory grounds and deadlines.

Businesses that miss their filing or payment deadlines may face estimated assessments issued by the IRD and financial penalties under Section 82A of the Inland Revenue Ordinance.

Penalties are calculated as a percentage of the tax undercharged, and the rate increases if a business has previous offences within the past five years, ranging from:

• 10% of the tax is undercharged for a first offence
• 20% if the return is filed only after multiple estimated assessments
• 20%–30% for a second offence within five years
• 35%–50% for third or subsequent offences within five years

Hong Kong remains one of the most business-friendly jurisdictions in the world, offering low profit tax rates, straightforward filing, and valuable tax incentives for SMEs and cross-border companies.

At the same time, many business owners find that the real complexity lies in the details, such as documentation standards and understanding what the IRD considers taxable.

When the requirements become unclear or the paperwork feels uncertain, seeking timely expert guidance can make the tax filing process smoother and help you stay compliant without needing to second-guess each step.