Hong Kong Corporate Tax Rate 2026: What Companies Actually Pay

Hong Kong Corporate Tax Rate 2026: What Companies Actually Pay[a]

INTRODUCTION

Hong Kong has one of the lowest corporate tax rates in Asia. But do you know what rate your company actually pays?

The headline rate is 16.5%. Most small companies pay less. The two-tier profits tax system, introduced in 2018, means your first HKD 2 million in assessable profits is taxed at half the standard rate.

Here is what companies in Hong Kong actually pay, and how it works.

The Standard Profits Tax Rate

The standard profits tax rate in Hong Kong is 16.5% for corporations. For unincorporated businesses, sole proprietors and partnerships, the standard rate is 15%.

This rate applies to assessable profits arising in or derived from Hong Kong. It does not apply to offshore profits, capital gains, or income that is otherwise exempt.

For context, that compares favourably to Singapore at 17%, the UK at 25%, and the United States at 21%. We once advised a founder considering relocating to Singapore. The tax rate was only one factor, but it mattered.

Hong Kong has maintained a low and stable tax rate for decades.

The Two-Tier Profits Tax System

Since the 2018/19 tax year, Hong Kong applies a two-tier rate structure to profits tax.

For corporations: the first HKD 2 million of assessable profits is taxed at 8.25%, with the remainder at 16.5%. For unincorporated businesses, the first HKD 2 million is taxed at 7.5%, with the remainder at 15%.

This means a company with HKD 5 million in assessable profits pays 8.25% on the first HKD 2 million (HKD 165,000) and 16.5% on the remaining HKD 3 million (HKD 495,000). Total tax is HKD 660,000, or an effective rate of 13.2%.

One important restriction: only one entity per associated group can access the lower tier. If your holding company and operating company are associated, only one qualifies.

What Are Assessable Profits

Assessable profits are not the same as accounting profits. They are the profits on which tax is actually calculated.

The two-tier rate only makes sense once you understand what counts as assessable profit. Read about how to file your profits tax return for the full picture.

Starting with your accounting profit, your accountant makes tax adjustments. You add back expenses not deductible for tax purposes, such as depreciation charged in accounts or entertaining costs. You deduct capital allowances, approved charitable donations, and any carried-forward losses.

A consulting company we worked with had HKD 3 million in accounting profit. But with capital allowances on equipment and carried-forward losses from a prior year, assessable profit was only HKD 1.5 million.

The result is your assessable profit. This is what the tax rates are applied to.

What Counts as Taxable Income

Hong Kong only taxes income arising in or derived from Hong Kong. This is the territorial principle.

Taxable income typically includes profits from selling goods sourced and sold in Hong Kong, income from services performed in Hong Kong, rental income from Hong Kong property, and interest income if it is part of the ordinary business.

Not taxable are capital gains (Hong Kong has no capital gains tax), dividends received from other companies, and offshore profits if you have proper documentation. The line between trading profits and capital gains can be contested by the IRD.

Frequent buying and selling of assets, even property or shares, can be treated as trading income.

Tax Deductions Available to Hong Kong Companies

Reducing your assessable profits legally is straightforward if you know what is deductible.

Common deductions include staff salaries and MPF contributions, rent and office costs, professional fees for accounting and legal work, and depreciation of qualifying plant and machinery via capital allowances. Interest on loans used for business purposes and approved charitable donations up to 35% of assessable profits are also deductible.

We once met a founder who was claiming his personal gym membership as a business expense because he exercised in the morning before work. Not deductible. What is not deductible includes private or domestic expenses, capital expenditure (replaced by capital allowances), fines and penalties, and non-business entertainment.

Reducing your assessable profit comes down to understanding what’s deductible. That depends on your accounting records, which we address in our post on proper bookkeeping and accounting standards.

Keeping clean, well-categorised records makes it far easier for your accountant to maximise legitimate deductions.

How Provisional Tax Works

Hong Kong charges provisional tax alongside the final assessment. Provisional tax is essentially a prepayment of next year’s expected tax liability.

It is calculated based on the previous year’s assessable profits. The IRD sends the demand at the same time as your final assessment for the year just ended.

You can apply to reduce provisional tax using Form IR1121 if your profits in the coming year are expected to be significantly lower. A founder faced a 50% revenue drop after a major restructuring. He applied to reduce provisional tax and avoided unnecessary cash flow stress.

Provisional tax is not a penalty. It is simply an advance payment, credited against your actual liability the following year.

No VAT, GST, or Capital Gains Tax

One of the cleanest features of Hong Kong’s tax system is what it does not have.

There is no value added tax, goods and services tax, capital gains tax, or withholding tax on dividends paid to overseas shareholders. There is also no inheritance tax, which was abolished in 2006.

This simplicity is a genuine competitive advantage. Businesses operating in Hong Kong have far fewer tax touchpoints than in most comparable jurisdictions.

Profits tax and salaries tax are the two main obligations for most companies.

Final Thoughts

Hong Kong’s profits tax system is genuinely simple once you understand the framework.

The two-tier rate means most small businesses pay an effective rate well below 16.5%. The territorial basis of taxation adds further scope for legitimate tax planning if your operations genuinely span multiple jurisdictions.

The key is knowing exactly what you owe and making sure your accounting reflects the correct position.

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