- Hong Kong has no separate “personal income tax” the way many Western countries do. A sole proprietor’s business profits are charged to profits tax, not salaries tax.
- You report sole-proprietorship profits in Part 5 of Form BIR60 (Tax Return, Individuals), which the IRD issues around May each year.
- Unincorporated businesses pay 7.5% on the first HK$2 million of assessable profits and 15% on anything above, under the two-tiered profits tax rates.
- Electing personal assessment on BIR60 can lower your bill by combining your income streams and applying personal allowances (the basic allowance is HK$132,000 for 2025/26).
- Partnerships file Form BIR52 instead.
- Tax head: sole-prop business profits → profits tax (not salaries tax, not a separate "personal income tax")
- Rate: 7.5% on first HK$2m assessable profits; 15% above
- Return: BIR60 Part 5 for a sole prop all year; BIR52 for partnerships
- File by: due date on your BIR60 (usually ~one month after the early-May issue)
“Personal income tax for small business owners in Hong Kong” is a slightly misleading label. As a sole proprietor, you do not pay a Western-style personal income tax on your trading profit. You pay profits tax at the unincorporated two-tier rate, and you declare it in Part 5 of BIR60.
Get that wrong and you can end up filing the wrong form, missing out on personal assessment, or assuming that incorporating later will not change your tax bill.
In this guide, you’ll learn:
- How sole proprietors are taxed, and why it is not “personal income tax”
- The sole proprietorship tax rate and how personal assessment works
- Which expenses you can deduct
- How to declare your income and meet the deadlines
- How drawings compare with a company salary or dividends
- Sole proprietor versus limited company, on the tax angle alone
How is a small business owner taxed in Hong Kong?
A sole proprietor’s Hong Kong-sourced business profits are charged to profits tax at the unincorporated two-tier rate. You declare them in Part 5 of Form BIR60, not on a separate “personal income tax” return.
Hong Kong runs a schedular system, which means different types of income follow different rules.
|
Income type |
Tax head |
Typical return |
|---|---|---|
|
Sole-proprietorship business profit |
Profits tax (unincorporated rates) |
BIR60 Part 5 |
|
Employment or director fees (from another employer) |
Salaries tax |
BIR60 Parts 1 to 4 |
|
Rental income |
Property tax (or profits tax if elected) |
BIR60 / election |
|
Partnership profit share |
Profits tax |
BIR52 (partnership return) |
If a sole proprietorship is all you run, your main job is to complete Part 5 with your assessable profits or adjusted loss. A salary from another employer goes in the employment sections of the same BIR60.
Do sole proprietors pay profits tax or personal income tax?
They pay profits tax. There is no separate Hong Kong tax called “personal income tax” that replaces it for your trade.
Many founders assume their sole-proprietorship income is taxed like salary, on progressive rates alone. This is the thinking behind the question: “I only pay personal income tax, right, not profits tax?” For the business itself, the opposite is true. The trade is taxed under profits tax rules, even though you report it through BIR60 as an individual.
Salaries tax only applies when you have employment income, including director’s fees from a company. Drawings from a sole proprietorship are not salaries tax. The tax falls on your assessable business profit, regardless of how much you withdraw.
What is the sole proprietorship tax rate?
Unincorporated businesses pay 7.5% on the first HK$2 million of assessable profits and 15% on the balance, under the two-tiered profits tax regime.
|
Assessable profits |
Unincorporated rate (sole prop / partnership) |
Corporation rate (for comparison) |
|---|---|---|
|
First HK$2 million |
7.5% |
8.25% |
|
Above HK$2 million |
15% |
16.5% |
For example, an assessable profit of HK300,000 gives tax of HK$22,500 (300,000 at 7.5%).
Only one connected unincorporated entity in a group can use the reduced first-tier rate on the first HK$2 million.
Leaving Part 5 blank invites an estimated assessment, which is often higher than your real profit. File even a nil or loss year, with a short computation. Fighting an inflated estimate after the fact usually costs more than filing on time
Can personal assessment reduce a sole proprietor’s tax?
Yes, if you elect personal assessment on BIR60 and it produces a lower bill than taxing each income stream separately.
Personal assessment lets the IRD:
- Add up your eligible income (sole-proprietorship profits, salaries, property)
- Deduct your personal allowances
- Charge tax at either the progressive salaries tax rates or the standard rate, whichever is lower
2025/26 rates you need to know
Progressive rates (on net chargeable income after allowances)
| Net chargeable income | Rate |
|---|---|
| First HK$50,000 | 2% |
| Next HK$50,000 | 6% |
| Next HK$50,000 | 10% |
| Next HK$50,000 | 12% |
| Remainder | 17% |
Standard rate
- 15% on the first HK$5 million of net income
- 16% on net income above HK$5 million
Basic allowance
- HK$132,000 for 2025/26
- Rising to HK$145,000 from 2026/27 under the 2026–27 Budget
Simple example: sole profit only
Assume:
- Sole-proprietorship profit: HK$300,000
- No other income
- Single, basic allowance only
Profits tax:
HK$300,000 × 7.5% = HK$22,500
Personal assessment:
Net chargeable income = HK$300,000 − HK$132,000 = HK$168,000
Progressive tax on HK$168,000 = HK$11,160
In this scenario, personal assessment wins.
It is worth running both calculations every year, because the better method can flip when profits rise or you add employment income.
Losses and elections
Losses from the sole proprietorship can sometimes be set against other income under personal assessment, which profits tax on its own cannot do.
You make the election on BIR60.
What business expenses can a sole proprietor deduct?
You can deduct expenses incurred wholly and exclusively in producing your Hong Kong assessable profits, within the profits tax rules.
Commonly deductible:
- Rent and utilities for business premises
- Staff wages and MPF contributions
- Professional fees, such as accounting and legal
- Marketing, software, and subscriptions used for the trade
- Business travel and transport
- Office supplies and small tools
Usually not deductible as business expenses:
- Private or domestic spending
- Drawings you take for yourself (these are not an expense, and the profit is taxed anyway)
- Fines and penalties
- Capital equipment (claimed through depreciation allowances rather than as a one-off expense)
Keep your invoices, bank statements, and reconciliations for at least seven years, because the IRD can ask for the evidence behind your Part 5 figures.
How do I declare sole proprietorship income and when do I file?
Complete Part 5 of BIR60 with the assessable profits or adjusted loss for each sole proprietorship you run.
Which form?
|
Your situation |
Form |
|---|---|
|
Sole proprietorship all year |
BIR60 Part 5 |
|
Partnership all year, or the structure changed mid-year |
BIR52 |
The IRD usually issues BIR60 on the first working day of May, for the year of assessment ended 31 March. File by the due date printed on the notice, which is typically about one month from the issue date. Full calendars, including partnership extensions, are on the tax filing deadlines page.
What to include in Part 5
- The business name and nature of the trade
- Your assessable profits or adjusted loss for the basis period
- Your accounting date, if it is not a 31 March year-end
Attach a tax computation (the IR957A proforma is common) if your affairs are not straightforward. If your gross income is over HK$2 million in the basis period, you must file financial statements and a tax computation with the return. Complete Part 5 even in a nil or loss year.
Partnerships follow the profits tax return (BIR52) cycle, often issued in April. The corporate and partnership process is covered in filing profits tax returns.
Do not copy your accounting profit straight into Part 5. Run a tax computation first (IR957A is the common proforma): add back private expenses, adjust depreciation to capital allowances, and only then enter your assessable profits. Founders who paste in P&L totals often overstate their taxable profit.
How do drawings compare with a company salary or dividends?
As a sole proprietor, you pay tax on your business profit whether or not you take the cash out. Drawings do not create a separate salaries tax charge.
| Factor |
Sole proprietor |
Limited company owner |
|---|---|---|
|
Taking money out |
Drawings (not a tax deduction) |
Director salary (salaries tax) and/or dividends (generally not taxed in your hands) |
|
What is taxed |
Assessable business profit (profits tax) |
Company pays profits tax on its profit; you pay salaries tax on your salary only |
|
Flexibility |
Simple, but the profit is taxed even if you leave it in the business |
The salary-versus-dividend mix can change your personal tax |
A company director who pays themselves a salary triggers salaries tax and employer obligations (MPF, IR56). Dividends, by contrast, are generally not caught by salaries tax in the shareholder’s hands, because the company has already paid profits tax.
Is a sole proprietorship or limited company better for tax?
At lower profit levels, the sole-proprietor rates (7.5% / 15%) are slightly below the corporate rates (8.25% / 16.5%), but you have no separate legal entity and you carry unlimited personal liability.
|
Factor |
Sole proprietorship |
Limited company |
|---|---|---|
|
Profits tax rate |
7.5% / 15% |
8.25% / 16.5% |
|
Owner pay |
Drawings; the profit is taxed anyway |
Salary (salaries tax) plus dividends |
|
Losses |
May help via personal assessment |
Held in the company, under different rules |
|
Allowances |
Personal assessment can apply the basic allowance to trade profit |
The company is separate; your salary uses your allowances |
Incorporating often makes sense once profits grow, you start hiring, you need limited liability, or you want to keep earnings inside the company.
What mistakes do sole proprietors make with tax?
The expensive errors tend to be conceptual, not arithmetic.
- Assuming a “personal income tax” replaces profits tax on the trade
- Filing the wrong return (Part 5 of BIR60, rather than BIR52 for partnerships)
- Skipping personal assessment without checking whether it lowers the bill
- Mixing personal and business spending, with no records to separate them
- Missing the BIR60 deadline (a 5% surcharge on late tax, then a further 10% after six months unpaid)
If you are already late, file the return and reply to any IRD letters in writing.
How Sleek handles sole proprietor tax
Sleek keeps your sole-proprietorship books current, prepares Part 5 of BIR60, and compares profits tax against personal assessment each year.
With Sleek, you can:
- Track income and expenses, so Part 5 is not rebuilt from memory every May
- File on time, with the correct assessable profit and a supporting computation
- Compare the tax methods, so you do not overpay by defaulting to profits tax
- Get advice on incorporating, for when a limited company would save tax or reduce risk
Plans start from HK$3,500 per financial year on our accounting services page.
450,000
businesses worldwide.
from 4,100+ reviews.
satisfaction rate from
16,000 surveyed clients.
FAQs about sole proprietorship tax in Hong Kong
Yes. Most people carrying on a business in Hong Kong must register with the IRD and display a Business Registration Certificate, and pay the levy. Registration is separate from filing Part 5 of BIR60, and you can owe profits tax on your assessable profits even when the business feels informal. The BR fee and levy change from year to year, so check the current fee table before you apply.
Write to the IRD Assessor and ask for a return if you have chargeable income or a sole-proprietorship trade. Waiting for a form that never arrived is not a defence. Keep copies of your request and any earlier notices. Once the BIR60 arrives, complete Part 5 even for a nil or loss year, so the IRD does not raise an estimated assessment.
Yes. Sole-proprietorship profits on their own can still benefit, when the basic allowance and progressive rates beat the 7.5% profits tax. On HK$300,000 of assessable profit with no other income, personal assessment often cuts the bill by roughly half compared with profits tax. Re-run the comparison every year of assessment before you tick the election box.
Report the profits or losses of all your sole proprietorships in Part 5 of the same BIR60 for that year of assessment (IRD self-employed guide). Do not open a separate individual return for each trade. If one of them is a partnership, that partnership uses BIR52, while your remaining sole proprietorships still sit in Part 5.
File as soon as you can, then deal with any estimated assessment or surcharge in writing. Late tax usually attracts a 5% surcharge, rising by a further 10% if it stays unpaid for six months. Leaving Part 5 blank is worse, because the IRD may assess profits you never earned. Keep evidence of when the return left your hands.
Yes. Sleek’s bookkeeping produces your year-end figures, prepares Part 5 and the supporting computation, and compares profits tax against personal assessment before you file. Accounting plans start from HK$3,500 per financial year. Book a meeting if you would like your sole-proprietorship tax handled alongside your accounts.
