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 looks like in Hong Kong in 2025, who needs to pay, how much, and how to stay compliant.
Here are some key highlights
- Hong Kong’s profits tax rate is 8.25% on the first HKD 2 million of profits, and 16.5% on anything above that.
- Only profits generated in Hong Kong are taxed; offshore income may qualify for exemption.
- There’s no capital gains tax, dividend tax, or withholding tax on interest income.
- Businesses can claim deductions for common expenses, charitable donations, and IP-related costs.
- Over 40 tax treaties help prevent double taxation for international businesses.
- Annual tax returns must be filed with the IRD, with deadlines based on your financial year-end.
Disclaimer: Information in this guide is accurate as of June 2025. For the latest updates, please refer to the Hong Kong Inland Revenue Department or seek professional advice.
Hong Kong Corporate Tax Rate (2025)
In Hong Kong, corporate tax is officially called profits tax, and it is charged on a company’s assessable profits, essentially, the taxable income generated from local business activities.
The city applies a two-tiered profits tax rate system, offering a lower rate on the first portion of taxable income and a standard rate on the remainder.
The current profit tax rates for 2025 are:
| Entity Type | Profits up to HKD 2 million | Profits above HKD 2 million |
|---|---|---|
| Corporations (companies) | 8.25% | 16.5% |
| Unincorporated businesses (sole proprietorships and partnerships) | 7.5% | 15% |
These rates apply only to profits generated from business operations in Hong Kong.
In addition to profits tax, Hong Kong does not impose capital gains tax, withholding tax on dividends, or interest income. Profits earned entirely from activities outside Hong Kong are generally exempt under the territorial tax system.
Who Pays Corporate Tax in Hong Kong
Any person or company that carries on a trade, profession, or business in Hong Kong is subject to profits tax on assessable profits generated from local business operations. This includes:
- Hong Kong-incorporated companies
- Non-resident businesses with offices, branches, or activities in Hong Kong
- Unincorporated businesses such as sole proprietorships and partnerships
There’s no residency requirement for the taxpayer. Both Hong Kong and overseas companies are taxed on profits earned within Hong Kong.
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Tip: Want a deeper look at how the salaries tax works? Read our full salaries tax in Hong Kong guide .
How Hong Kong’s Territorial Tax System Works
Hong Kong follows a territorial tax system, meaning profits tax only applies to income earned from business operations carried out in Hong Kong.
In simple terms, profits are classified as either:
- Onshore profits: generated inside Hong Kong and subject to profits tax.
- Offshore profits: generated entirely outside Hong Kong. If certain conditions are met, these profits may qualify for a tax exemption.
➡️ For example,
Suppose your Hong Kong company sells goods exclusively to overseas customers, with contracts, services, and deliveries all happening outside Hong Kong.
In that case, those profits may be exempt from Hong Kong profits tax. However, the Inland Revenue Department (IRD) will require sufficient documentation to support your claim.
Is Your Income Really Offshore? Here's How the IRD Decides
Tip: Learn how onshore business activities are taxed in Hong Kong in our guide on onshore company tax.
Offshore Tax Exemption in Hong Kong
Under the territorial tax system, companies may apply for a tax exemption if their profits qualify as foreign-sourced income.
The IRD reviews each application on a case-by-case basis, requiring documentation to prove business operations occurred entirely outside Hong Kong.
Typical examples include:
- Selling goods overseas, with contracts and deliveries handled offshore.
- Providing services fully performed outside Hong Kong.
- Managing business operations from overseas.
Tip: Need a deeper dive into offshore tax exemption? Check out our full guide on offshore tax exemption in Hong Kong.
Tax Incentives in Hong Kong
Aside from its low corporate tax rate, Hong Kong offers several tax incentives that can further reduce your tax liability:
Foreign-Sourced Income Exemption (FSIE) Regime
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
- Interest income
- Intellectual property royalties
- Disposal gains on equity interests
To qualify, a company must demonstrate that it runs part of its core business in Hong Kong. This typically means having an office, employing staff locally, and making key business decisions within Hong Kong.
Environmental Protection Deductions
Businesses may fully deduct qualifying capital expenditure on environmental protection equipment (such as green machinery or electric vehicles) in the year of purchase.
Intellectual Property Tax Incentives
If your company earns income from intellectual property (like patents or software), you may pay a lower tax rate of just 5%, instead of the usual 16.5%.
To qualify, your IP must be developed or managed in Hong Kong. And if you’re working with related companies (like a parent company or overseas branch), you may need to provide extra documents to prove the pricing is fair.
Other Allowable Deductions
Businesses may claim tax deductions for a range of common expenses, helping reduce their assessable profits and overall tax liability. These include:
- Charitable donations (up to 35% of assessable profits)
- Normal operating expenses (rent, utilities, salaries, and materials)
- Remuneration paid to employees (wages, bonuses, or other employment-related payments)
- Costs related to trademark registration and leased property reinstatement
- Capital allowances for eligible fixed assets
In addition, individual owners of sole proprietorships or partnerships may opt for personal assessment, which allows personal tax allowances to offset business income, potentially lowering their total tax liability.
Double Tax Prevention Treaties
Hong Kong has signed tax treaties, formally known as Comprehensive Double Taxation Agreements (CDTAs), with many countries to help businesses avoid being taxed twice on the same income.
These treaties provide benefits such as:
- Tax credits for foreign taxes paid
- Exemptions from certain taxes
- Lower withholding tax rates on cross-border payments (e.g., dividends or royalties)
While these tax treaties apply mainly to foreign-sourced income and overseas tax obligations, they typically don’t affect profits tax payable in Hong Kong.
As of June 2025, Hong Kong has signed CDTAs with over 40 jurisdictions, including:
| Region | Jurisdictions | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Europe | Austria, Belarus, Belgium, Croatia, Czech Republic, Estonia, Finland, France, Georgia, Guernsey, Hungary, Ireland, Italy, Jersey, Latvia, Liechtenstein, Luxembourg, Malta, Netherlands, Portugal, Romania, Russia, Serbia, Spain, Switzerland, United Kingdom | ||||||||
| Asia and Oceania | Bangladesh, Brunei, Cambodia, India, Indonesia, Japan, Korea, Kuwait, Macao SAR, Mainland China, Malaysia, New Zealand, Pakistan, Qatar, Saudi Arabia, Thailand, United Arab Emirates, Vietnam, Armenia, Bahrain | ||||||||
| North America | Canada, Mexico | ||||||||
| Africa | Mauritius, South Africa Note: Hong Kong has also signed CDTAs with Türkiye and the Maldives, which are pending entry into force. Negotiations with several other jurisdictions remain ongoing as of 2025. Filing Corporate Tax Returns in Hong KongEvery 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. Filing Deadlines and FormsThe IRD issues profits tax returns every April for the previous year of assessment, also referred to as the basis period, which runs from 1 April to 31 March. Most SMEs and other businesses have one month to file from the issue date. The exact deadline is stated on the tax 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:
Additional supplementary forms may be required when electing for the two-tiered profits tax rates, applying for tax exemptions, or declaring income from intellectual property. How to Submit Your Tax FilingYou can file in one of two ways:
Your submission must include:
Each taxpayer is responsible for accurate reporting and should keep supporting documents in case of an IRD review. Provisional Profits Tax SystemHong Kong operates a provisional profits tax regime. This means companies must prepay based on estimated current-year profits:
Once your actual profits are confirmed, any overpayment will be refunded or credited toward the next tax year.  Tip: Need help with tax filing or profits tax return? Check our list of Best Tax Advisors in Hong Kong. Penalties for Late Filing or PaymentMissing your tax deadlines can lead to estimated assessments issued by the IRD, a 10% surcharge on late payments (which can rise to 50% for repeat offences), or even legal action in serious cases. These penalties often arise from common issues such as assuming foreign-sourced income is automatically exempt, failing to submit full documentation for offshore claims, overlooking provisional tax instalments, or simply missing the filing deadline itself. Staying organised and submitting accurate returns on time helps your business remain compliant and avoid unnecessary liabilities. Final NoteHong 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. That said, navigating the tax system still requires careful compliance with IRD rules, supporting documentation, and timely reporting. If you're managing overseas operations, exploring tax exemptions, or dealing with foreign-sourced income, seeking professional advice can help you stay compliant while maximising your tax position. FAQsHow much is Hong Kong corporate tax?Hong Kong applies a two-tiered profits tax rate. For corporations, the first HKD 2 million of assessable profits is taxed at 8.25%, while profits above that amount are taxed at 16.5%. For unincorporated businesses, including sole proprietorships and partnerships, the rates are 7.5% and 15%, respectively. Is there no corporate tax in Hong Kong?What is the 2-tier tax rate in Hong Kong?Is Hong Kong a tax haven?What is a profits tax in Hong Kong?Related article |
