Hong Kong's Corporate Tax Rate in 2025: A Beginner's Guide

Hong Kong’s simple corporate tax system makes it one of Asia’s top business hubs. With no tax on offshore income and one of the world’s lowest corporate tax rates, many entrepreneurs choose to open a company in Hong Kong to benefit from attractive tax incentives and exemptions. 

But how exactly does the tax rate apply, and which income is taxable? Are there hidden aspects of corporate tax in Hong Kong? Understanding where your profits come from and how they’re taxed is crucial for maximising benefits. That’s why this guide will walk you through the key points to help you navigate corporate taxes effectively.

Hong Kong’s corporate tax, also known as profits tax, follows a territorial system. If a company is incorporated in Hong Kong but earns all its profits outside the jurisdiction, the business owner can apply for an offshore profits tax exemption.

Unlike some countries that apply a flat rate, Hong Kong uses a two-tiered progressive structure, offering a concessionary tax rate on a portion of profits.

This means that:

• Only profits earned from a trade, profession, or business operating in Hong Kong are taxed. Income from outside Hong Kong is not subject to tax in the jurisdiction.
• From the 2018/19 tax year onwards, the profits tax rate is 8.25% on the first HKD 2 million of assessable profits. Businesses with profits exceeding this threshold are taxed at the standard rate of 16.5%.
• For unincorporated businesses, such as partnerships and sole proprietorships, the tax rates are 7.5% and 15% instead.[1]

Additionally, most services and goods are exempt from value-added tax (VAT) or sales tax. There is also no capital gains tax in Hong Kong, and dividend or interest income is not subject to withholding tax, except for interest from qualifying debt instruments, which is taxed as regular profits.

Key Tax Information in Hong Kong

Hong Kong's tax system is schedular, meaning only specific types of income are taxed under separate categories.[2] For example, business profits are taxed under Profits Tax, rental income under Property Tax, and employment income under Salaries Tax. Income that does not fall into these categories, such as dividends or offshore earnings, is not taxed.

Let’s look at the differences between onshore and offshore operations to understand how your business will be taxed.

An onshore company is a company that conducts its main business activity inside the jurisdiction where it is incorporated. 

For example, if your company owns and operates bakeries located in Hong Kong and your employees and customers are physically present in your stores, using Hong Kong dollars, then your company is an onshore company, and you must pay taxes according to your taxable income.

In contrast, offshore companies registered in Hong Kong but conducting all business operations outside the jurisdiction are not subject to corporate income tax in Hong Kong.

For example, an ecommerce company registered in Hong Kong that serves clients in Europe and sources products from China may qualify for 0% offshore tax. 

It’s important to note that offshore tax status is not automatic. You must provide evidence to the Inland Revenue Department (IRD) to prove that all operations are conducted outside Hong Kong in order to qualify for exemption from Hong Kong profits tax.

To support Hong Kong companies and maintain competitiveness as a global business hub, the local authorities have introduced several tax incentives. Here are some of the most noteworthy ones:

• Foreign-Sourced Income Exemption (FSIE) Regime: Allows specified offshore income (such as interest, dividends, intellectual property (IP) income, equity interest, and other disposal gains) to be exempt from Hong Kong profits tax.[3]
• Tax Deduction on Environmental Protection Facilities: Provides a profits tax deduction for capital expenditure on environmental protection machinery and installations.[4]
• Special Deductions: Includes tax deductions for reinstatement costs of leased premises and trademark registration fees for trademarks used in generating taxable profits.

Hong Kong has signed Double Taxation Prevention Treaties (CDTAs) with multiple jurisdictions to help taxpayers avoid being taxed twice on the same income when operating across borders. These agreements provide tax relief, such as tax credits, exemptions, or reduced withholding tax rates on certain types of income.

As of January 2025, Hong Kong has signed CDTAs with the following jurisdictions.

It also has pending agreements with several other countries, including Armenia, Bahrain, and Türkiye.[5]

The Hong Kong Inland Revenue Department issues profit tax returns to companies in April without delay every year. However, the deadline for profits tax filing depends on the company’s fiscal year-end, with some businesses eligible for extensions until November of the following year.

To file the Profits Tax Return, you will need to submit a Profits Tax Return - Corporations (BIR51), along with supplementary forms required to report preferential tax regimes and incentives, if applicable. These forms can be downloaded from the IRD’s website.[6]

You can submit the forms and other documents, such as financial statements and tax computations, electronically via the eTAX portal.

Profits tax in Hong Kong is usually payable in two instalments under a provisional profits tax system, which requires businesses to prepay tax based on estimated profits for the current financial year. This helps businesses manage cash flow by spreading tax payments over time.

• First instalment (75%): Due on the date specified in the assessment notice.
• Second instalment (25%): Typically due three months later.

Once the final assessable profits are determined, any excess tax paid is either credited to the next fiscal period or refunded.

Companies qualified for the provisional profits tax can apply for clarification with the authorities during a valid period. Typically, this period is one month before the due date or two weeks after the payment notice.

It is crucial to submit tax returns and make tax payments on time, as failure to do so will result in penalties. These include a 10% surcharge on the amount of tax undercharged for the first offence and up to 50% for the third or subsequent offences within five years.[7]

If you fail to pay the first instalment of the provisional profits tax by the due date on the Notice of Assessment, the second instalment will be immediately due.[8]

Hong Kong’s low corporate tax rate and straightforward tax system are among its greatest advantages, making it an ideal jurisdiction for business setup or expansion. With a territorial tax regime, competitive rates, and various tax incentives, companies can maximise profits while growing in a dynamic business environment.

However, staying compliant is key. Filing tax returns on time and maintaining proper record-keeping helps avoid penalties and ensures your business remains in good standing with the authorities. If you need professional corporate services to stay compliant, consider Statrys' company secretary service to handle all your corporate obligations with ease.