Profits Tax in Hong Kong

Key Takeaways

• Profits tax in Hong Kong is one of the most business-friendly tax systems in the world.
• The first HK$2 million is only taxed at 8.25% while the rest thereafter will be taxed at 16.5%.
• Operates under the territorial source principle. Only profits earned within Hong Kong are subject to taxation. Operations entirely outside of Hong Kong can apply for offshore status claims, which potentially leads to a 0% tax rate.
• A common misconception that small businesses are exempted from audit requirements. 

What is a Profits Tax Return?

Filing a profits tax return is a crucial mandatory requirement for businesses in Hong Kong. This return form reports your company’s earnings and helps determine how much tax you owe based on profits generated within the region. In general, all companies must submit their profits tax return annually, detailing income, expenses, applicable deductions and an audited financial report. This process ensures regulatory compliance and enables companies to claim any eligible tax benefits.

When Will You Receive Your Profit Tax Return?

For a newly registered Hong Kong Company, your company will receive the first profits tax return 18 months after the date of incorporation. If your company is more than 2 years old, your company shall receive a profits tax return form in April every year. Upon receipt of the Profits Tax Return form, you should fill in your data, attach all required supplementary forms and the audited financial report within 1 month.

What is the Corporate Tax Rate in Hong Kong?

Hong Kong proudly operates a territorial profits tax system, meaning that only profits earned within the city are taxable, no matter where a business is incorporated or where its owners reside. This unique approach allows companies to enjoy our  tax advantages, particularly for those sourcing profits entirely offshore, which may qualify for tax exemptions.

One of the most attractive features of Hong Kong’s tax system is the absence of capital gains tax, alongside no withholding tax on dividends or interest. These elements make Hong Kong a premier destination for businesses looking to thrive. For businesses, the standard profits tax rate is set at 16.5%. However, since 2018/19, a two-tiered tax system has been introduced: the first HK$2 million of assessable profits is taxed at a reduced rate of 8.25%, significantly alleviating the tax burden on new and smaller enterprises. Sole proprietorships and partnerships benefit as well, with a standard tax rate of 15% and the first HK$2 million taxed at 7.5%.

Extension for Submission of Profit Tax Return

As an entrepreneur, your time is limited. Juggling numerous transactions can make tax preparation feel overwhelming. That’s where Get Started HK comes in! We can help you apply for an extension on your profits tax return, giving you the extra time you need to ensure accuracy.

Our professional accountants are ready to guide you through the process and alleviate your tax-related stress. Don’t let tax season slow you down! Contact us at info@getstarted.hk for expert support, and focus on what you do best: growing your business!

Deductible Expenses

Below is a short list of the business tax deductions you may be able to write off on your tax return.

• cost of goods sold
• office utilities
• marketing
• business travels
• employee health insurance
• contractors
• office expenses
• advertising
• bank fees
• business meals
• employee retirement plans
• freelancers

To optimize your company’s profits, it’s crucial to know which expenses are tax-deductible. Generally, outgoings related to generating chargeable profits are allowable, except for domestic or private expenses and capital expenditures.For example, on a business trip to meet a client, expenses like accommodation, transportation, and business meals are tax-deductible. However, any extra days spent for leisure are considered private and cannot be claimed.

Understanding these rules can significantly lower your tax bill. Want expert help in maximizing your deductions? Contact us today!

Offshore Status

Offshore status is based on a practical matter of fact. When the company does not have operations, customers, suppliers, or employees in HK, the company is eligible to claim an offshore tax exemption with the IRD. To claim, the company needs to submit an audited financial statement prepared by the HKCPA. Our expert CPA team is here to guide you, ensuring you maximize your tax savings.

Regardless of whether a company is onshore or offshore, a company must submit the profit tax form to the Hong Kong Inland Revenue Department on time. Even if you have no customers, suppliers, or staff in Hong Kong, you still have to show evidence to the Hong Kong government. If they determine that your company is offshore, then your company is not subject to the Hong Kong corporate rate. The tax rate will then be 0%. The offshore status is based on a hard, practical matter of fact.

Audit Requirement Exemptions

There is a common misconception that small businesses are exempt from submitting audit requirements. There is no exemption. A small business must submit the profit tax form and prepare audited reports on time. While a small business may not need to submit the audited report along with the form immediately.

Data on the profit tax form should be 100% accurate, and that data shall be based on the audited report. If you are interested to learn about the regulations in Hong Kong, customers can refer to section 405 of the Companies Ordinance for details.

Frequently Asked Questions