2025-26 Budget and Tax Measures

For a typical Hong Kong SME or startup founder, the 2025/26 Budget delivers modest but tangible personal tax relief rather than structural change. The key immediate benefit is a one-off 100% reduction in salaries tax and profits tax, capped at HK$3,000 (doubled from the previous year’s HK$1,500). Progressive salaries tax rates, two-tiered profits tax rates, and personal allowances remain unchanged for the 2025/26 year of assessment. Broader Budget measures (AI research institute, tourism funding, Northern Metropolis, green initiatives) create longer-term ecosystem opportunities but rarely affect a founder’s 2025/26 tax bill directly. The highest-leverage action for most directors remains smart structuring of remuneration (salary vs dividend) and full claiming of dependent allowances.

Salaries Tax for Directors and Entrepreneurs (Year of Assessment 2025/26)

Progressive rates remain unchanged:

Net Chargeable Personal Income	Progressive Tax Rate %
First HK$50,000	2%
Next HK$50,000	6%
Next HK$50,000	10%
Next HK$50,000	14%
Remainder	17%

Standard rate (two-tiered): 15% on the first HK$5 million of net income (after deductions but before personal allowances), 16% on the excess.

One-off relief: 100% reduction of salaries tax (and tax under personal assessment), subject to a ceiling of HK$3,000 per case. Applied automatically by the Inland Revenue Department on final assessment.

Comparison: Tax Relief & Allowances (2024/25 vs 2025/26)

Item	2024/25	2025/26	Change
One-off tax reduction ceiling (salaries tax & profits tax)	HK$1,500	HK$3,000	Doubled
Basic allowance	HK$132,000	HK$132,000	Unchanged
Dependent parent/grandparent (aged 55–59) basic	HK$25,000	HK$25,000	Unchanged
Additional dependent allowance (if resided with you throughout the year)	HK$25,000	HK$25,000	Unchanged
Progressive tax rates	Same	Same	Unchanged
Two-tiered standard rates (Personal)	15% / 16%	15% / 16%	Unchanged

Note: Personal allowances increase only from year of assessment 2026/27 onwards (basic allowance rises to HK$145,000; 55–59 dependent allowances rise to HK$27,500 + HK$27,500). For 2025/26 they stay at the levels shown above.

Worked Example 1 — HK$600,000 Salary (Single + 2 Dependents Aged 55–59 Living With You)

• Income: HK$600,000
• Basic allowance: HK$132,000
• Dependent allowances: 2 × HK$50,000 = HK$100,000
• Total allowances: HK$232,000
• Net chargeable income: HK$368,000

Tax before reduction: HK$44,560
One-off reduction: HK$3,000

Tax payable: HK$41,560 (effective rate ≈ 6.9%)

Worked Example 2 — Optimised Structure (HK$200,000 Salary + HK$400,000 Dividend)

Same personal circumstances (single + two dependents aged 55–59 residing with you throughout the year).

• Dividend of HK$400,000: not subject to salaries tax or profits tax in the hands of the shareholder
• Salary: HK$200,000
• Allowances: HK$232,000
• Net chargeable income: HK$200,000 – HK$232,000 = HK$0
• Tax on salary: HK$0
• Dividend of HK$400,000: not subject to salaries tax or profits tax in the hands of the shareholder

Total personal tax payable: HK$0

This is a common and legitimate way for founders to reduce personal tax, provided the salary level is commercially justifiable and the company has sufficient distributable profits. Dividends are not deductible for the company, so the profits tax position of the company must still be considered.

Corporate / Profits Tax

Two-tiered rates remain unchanged:

• Corporations: 8.25% on first HK$2 million of assessable profits; 16.5% thereafter
• Only one entity in a group of connected entities may enjoy the two-tiered rates

One-off relief: 100% reduction of profits tax for 2025/26, capped at HK$3,000 per business.

Example: HK$3 million Assessable Profits (Corporation)

• First HK$2,000,000 × 8.25% = HK$165,000
• Next HK$1,000,000 × 16.5% = HK$165,000
• Tax before reduction: HK$330,000
• One-off reduction: HK$3,000
• Tax payable: HK$327,000

Hong Kong continues to tax only Hong Kong-sourced profits. Genuine offshore profits remain non-taxable (subject to facts and the FSIE regime). There is still no capital gains tax and no tax on dividends received.

Broader Budget Context for Founders

While the tax measures above are the most immediate, the 2025/26 Budget (and the subsequent 2026-27 Budget that confirmed the relief) also signalled continued government support for innovation, tourism, green tech, and the Northern Metropolis. These create medium-term opportunities for startups in AI, green technology, advanced manufacturing, and tourism-related services, but they do not change a founder’s 2025/26 tax calculation.

Other Key Proposals

The Hong Kong Government is introducing measures to position the city as the most business-friendly destination, simplifying the process of registering and operating a business. These initiatives are designed to attract global investments and visionary entrepreneurs, reinforcing Hong Kong’s status as a vibrant hub for innovation, commerce, and opportunity.

• Invest HK$1 billion to set up the Hong Kong AI Research and Development Institute, aiming to boost Hong Kong’s position in tech innovation.
• Provide HK$1.23 billion to the Hong Kong Tourism Board to improve tourism, enhance visitor experiences, and attract high-spending overnight tourists.
• Invest over HK$210 million in a port community system to improve data sharing and strengthen Hong Kong as a global shipping hub.
• Launch a HK$300 million subsidy in mid-2025 for installing fast EV chargers citywide, promoting green transport. The InnoCentre in Kowloon Tong will become a GreenTech Hub for over 200 green tech companies to drive innovation.
• Launch a HK$100 million scheme to support manufacturing upgrades, offering up to HK$250,000 per company on a 1:2 matching basis to enhance industrial productivity and competitiveness.
• Support 30+ cultural intellectual property projects over five years with matching funds. In 2025, the second Hong Kong Performing Arts Expo will be held to boost cultural industries.
• Provide matching funds to help universities establish a third medical school, promoting medical education and healthcare innovation.
• Increase spending on projects like the Northern Metropolis and add refreshment stalls at major harbourfront sites in 2025. A study is also being done to turn the Hung Hom waterfront into a new landmark.
• Invest in the Low-Altitude Economy Regulatory Sandbox to develop low-altitude flying activities.

Should you have any questions, feel free to contact our licenced CPA and Chartered secretary at info@getstarted.hk.

FAQs for 2025-26 Budget and Tax Measures