- Hong Kong taxation is territorial: only profits and income sourced in Hong Kong are taxed. Genuinely foreign-sourced income may fall outside the net.
- Companies pay profits tax at 8.25% on the first HK$2 million of assessable profits and 16.5% above. Unincorporated businesses pay 7.5% and 15% on the same tiers.
- Individuals pay salaries tax at progressive rates up to 17%, or a 15%/16% standard rate, whichever is lower.
- There is no VAT, GST, capital gains tax, dividend withholding, or estate duty. That absence is Hong Kong’s headline advantage.
- The main withholding exception is royalties to non-residents, at an effective 4.95% for unrelated corporate payees.
- Basis: Territorial; only Hong Kong-sourced income is taxed
- Companies: Profits tax 8.25% / 16.5% (two-tier on HK-sourced assessable profits)
- Individuals: Salaries tax — progressive to 17%, or 15% / 16% standard rate, whichever is lower
- Property: 15% on net assessable rental value (Hong Kong property only)
- Not levied: No VAT/GST, capital gains tax, dividend or interest WHT, or estate duty
Hong Kong taxation is one of the simpler low-rate systems in the region. Companies deal mainly with profits tax, individuals with salaries tax, landlords with property tax. Sales tax, capital gains tax, and dividend withholding simply do not exist.
If you’re incorporating in Hong Kong, you need one clear map of the tax system: what you pay, what you don’t, and what you must file each year. This page gives you that map in a single read.
In this guide, you’ll learn:
- How Hong Kong’s territorial tax system works
- What companies and individuals actually pay
- What Hong Kong does not tax, and the main exceptions
- Filing and compliance obligations at a glance
- Cross-border features (offshore exemption and double taxation agreements)
- What to do next once you know which taxes apply to you
How does Hong Kong’s territorial tax system work?
Hong Kong taxes on source, not residence. A company or individual is taxed only on income that arises in or is derived from Hong Kong, regardless of where the taxpayer is based.
What counts as Hong Kong-sourced income?
The IRD looks at where the profit-generating activity took place:
- Where contracts were negotiated
- Where key decisions were made
- Where work was performed
Genuinely foreign-sourced profits may be exempt from Hong Kong profits tax even if the money is later received in Hong Kong. You must support the claim with evidence from day one.
How do you claim offshore profits?
You make the claim in your annual Profits Tax Return. The IRD can query it, so keep contracts, correspondence, and records showing the activity happened offshore.
For cross-border founders, this is the structural advantage: a Hong Kong company earning profits offshore may pay little or no Hong Kong profits tax on them. Our offshore profits tax exemption guide walks through the evidence test and common IRD challenges.
"Offshore equals tax-free" is no longer a safe assumption for passive income. Since 1 January 2023, the Foreign-Sourced Income Exemption (FSIE) regime can tax certain foreign passive income (dividends, interest, IP income, and equity-disposal gains) received in Hong Kong by a member of a multinational group, unless it meets economic-substance requirements. Offshore trading profits can still be exempt on source; foreign passive income now needs real substance.
What taxes does Hong Kong levy, and what does it not?
Hong Kong has three main direct taxes and several common taxes that simply do not exist here.
Use the table below as your at-a-glance map.
|
Tax |
Hong Kong position (2025/26) |
What it means in practice |
|
Profits tax (companies) |
8.25% on first HK$2m; 16.5% above |
Tax on Hong Kong-sourced business profits; two-tier rate, one per group |
|
Profits tax (sole props / partnerships) |
7.5% on first HK$2m; 15% above |
Same two-tier structure for unincorporated trades |
|
Salaries tax (individuals) |
Progressive to 17%, or 15%/16% standard, whichever is lower |
Tax on Hong Kong employment income, director’s fees, and benefits |
|
Property tax |
15% on net assessable value |
Hong Kong rental income; 20% repairs allowance built in |
|
VAT / GST |
None |
No sales-tax registration, returns, or invoices |
|
Capital gains tax |
None |
One-off investment disposals are not taxed as capital gains |
|
Dividend / interest WHT |
None on outbound payments |
Royalties to non-residents are the main withholding case |
|
Estate duty |
None (abolished 2006) |
No tax on estates or inheritances |
How are companies taxed on profits?
Hong Kong companies pay profits tax at a two-tier rate on Hong Kong-sourced assessable profits: 8.25% on the first HK$2 million and 16.5% on the balance. Unincorporated businesses pay 7.5% and 15% on the same tiers.
Only profits sourced in Hong Kong are assessable. Losses can be carried forward indefinitely to offset future profits.
How does the two-tier profits tax rate work?
One nominated entity per group of connected entities gets the reduced first-tier rate. Every other connected company pays 16.5% from the first dollar.
- Connected entities: companies under common control
- Election: the group chooses which company gets 8.25% on the first HK$2 million when you file
- Holding structures: if you have a holding company and operating subsidiaries, the election matters
How are individuals and directors taxed?
Individuals pay salaries tax on Hong Kong employment income at the lower of progressive rates or the standard rate.
What are the progressive and standard salaries tax rates?
Progressive rates (2025/26) apply to net chargeable income after deductions and 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 (2025/26):15% on the first HK$5 million of net income, 16% above. You pay whichever method produces the lower tax.
Allowances reduce the bill. The basic allowance for 2025/26 is HK$132,000 (rising to HK$145,000 from 2026/27 under the 2026-27 Budget).
How are non-residents taxed on employment income?
Non-residents face the same territorial rule: only Hong Kong-sourced employment income is taxed.
If your work is wholly outside Hong Kong and you spend fewer than 60 days in the territory in the year, that income may fall outside salaries tax. The IRD applies a source test (where the employment is located, not just where you live).
How do directors, freelancers, and sole proprietors file?
Employees, company directors, and sole proprietors report income on BIR60, issued around early May each year with a due date roughly one month later.
- Director salary: salaries tax on employment income and director’s fees
- Dividends: not taxed in your hands (the company has already paid profits tax)
- Freelancers as sole props: business income on BIR60 Part 5 as profits tax, not salaries tax
- Personal assessment: optional election on BIR60 to aggregate salaries, property, and sole-prop income; useful when you have losses in one category
How does property tax work?
Property tax is charged at 15% on the net assessable value of income from letting Hong Kong property.
Net assessable value is calculated as:
- Rent received
- Less rates paid by the owner
- Less a 20% statutory allowance for repairs and outgoings
Companies that pay profits tax on rental income can usually set property tax off against profits tax. Property tax mainly affects individual landlords. It applies only to Hong Kong property.
What are the main exceptions to “no tax”?
Hong Kong’s headline is what it does not levy (see the summary table above). Two nuances founders still need:
Trading gains vs capital gains
There is no capital gains tax. Gains from trading stock or property as a business can still be assessable profits, not exempt capital gains.
Royalties and performance fees to non-residents
This is the most common withholding case:
- Royalties (unrelated corporate payee):30% of the royalty is deemed assessable at 16.5%, giving an effective 4.95% on the gross payment
- Royalties (associate or IP previously owned in HK): effective rate can rise to 16.5%
- Non-resident entertainers or athletes:10% withholding on performance fees in Hong Kong
- Who withholds: the Hong Kong payer remits to the IRD at source
- Treaty relief: Hong Kong’s 57 CDTAs can reduce rates for qualifying recipients
What filing and compliance obligations apply?
Low rates do not mean no obligations. Every active Hong Kong company must keep proper books, obtain a statutory audit by a Hong Kong CPA, and file an annual profits tax return (BIR51) with audited financial statements.
What must every Hong Kong company file?
- Books and records kept throughout the year
- Statutory audit by a Hong Kong CPA
- Profits tax return (BIR51) with audited financial statements
The first return usually arrives about 18 months after incorporation. After that, returns are issued each April for the year ended the prior March, with a due date roughly one month from issue (longer if an audit is in progress).
What do individuals need to file?
Directors and employees file BIR60 for salaries tax in the same cycle (issued around May, due about one month later). Property owners with rental income file separately.
What’s the difference between NAR1 and the profits tax return?
Do not confuse profits tax with the Companies Registry annual return (NAR1).
- BIR51: tax return filed with the IRD
- NAR1: confirms company particulars at the Companies Registry, due 42 days after your incorporation anniversary
- Late fees: NAR1 carries a separate penalty; it is not a tax return
Penalties apply for late filing and underpayment. Our Hong Kong tax filing deadlines calendar lists every form and extension rule.
For the 2025/26 year of assessment, the Government has proposed a one-off 100% tax reduction on final profits tax, salaries tax and tax under personal assessment, capped at HK$3,000 per case. Confirm the enacted position on the IRD site at filing time.
No VAT does not mean no paperwork. Hong Kong's simplicity is in the rates and the number of taxes, not in zero compliance. Most founders outsource the annual audit-and-return cycle rather than tracking it themselves.
How do offshore profits and double taxation agreements work?
Two features matter for cross-border founders: the offshore exemption for genuinely foreign-sourced profits, and double taxation agreements (DTAs) to avoid the same income being taxed twice.
How do you claim offshore profits?
If your company’s profit-generating activity happens outside Hong Kong, you can claim those profits are non-assessable in your BIR51 return.
The IRD expects documentary proof:
- contracts and invoices
- board minutes
- travel records
A successful claim means 0% Hong Kong profits tax on that income. Claims are reviewed case by case; vague assertions are rejected.
Since 1 January 2023, the FSIE regime can still tax certain foreign passive income received in Hong Kong unless substance requirements are met (see callout above).
How does double taxation relief work?
Hong Kong has 57 comprehensive double taxation agreements (CDTAs) as at March 2026. Relief works in three layers:
- Territorial rule: Hong Kong may already exclude foreign income
- Foreign tax credit: offsets Hong Kong tax when the same income was taxed abroad
- Treaty relief: caps rates on dividends, interest, and royalties; provides mutual agreement procedures
You may need a certificate of resident status (IRD forms IR1313A or IR1313B) to claim treaty benefits in the other country.
Our double taxation and DTAs guide walks through foreign tax credits, treaty elections, and certificate applications.
What should founders do next?
Once you know which taxes apply, compliance comes down to four practical steps.
- Confirm your source position. Map which income is Hong Kong-sourced vs offshore before your first return arrives.
- Set up books from day one. Proper records support both audit and any offshore claim.
- Mark the calendar. First profits tax return at ~18 months; BIR60 in May; NAR1 at your incorporation anniversary.
- Get professional help for audit and filing. Most founders outsource the annual cycle rather than tracking it alone.
If you have cross-border income, review FSIE substance rules and whether a DTA or foreign tax credit applies before you file.
When is Sleek not the right fit for Hong Kong tax?
- You only need a one-off opinion on a specific source-of-income question and already have Big Four or in-house tax counsel.
- Your company is dormant with no trading activity and you are comfortable handling the minimal filing yourself.
- You are not incorporated in Hong Kong and only need general information before deciding where to set up.
- You need specialist transfer-pricing or group restructuring advice beyond SME profits tax, audit, and compliance.
If you want the territorial system captured in your returns, audit, and offshore claims without building an in-house finance team, outsourced accounting and tax filing is the usual fit.
How Sleek handles your Hong Kong tax
Sleek runs the Hong Kong tax cycle for founders so the low-tax system stays an advantage rather than an admin burden.
With Sleek, you can:
- Have the full cycle handled: Our accounting and tax team manages bookkeeping and the profits tax return (plans from HK$3,500 per financial year)
- Get audited by an in-house CPA team: Our audit and tax filing covers the statutory audit filed with the return
- Claim what you’re entitled to: We prepare offshore-exemption and foreign tax credit claims where they apply
- Stay on the calendar: We track the first return, annual deadlines, and filings so nothing slips
The parts of Hong Kong tax that are genuinely simple stay simple; the parts that need a CPA are covered.
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FAQs about Hong Kong taxation
No. The reduced 8.25% / 7.5% first-tier rate applies to one nominated entity per group of connected entities. Other group companies pay 16.5% / 15% from the first dollar. You nominate the beneficiary when you file; if you have a holding company and operating subsidiaries, choose carefully. Our two-tier profits tax rates guide covers the connected-entity definition and election with worked examples.
Profits tax is the company’s tax on Hong Kong-sourced business profits at 8.25% / 16.5%. Salaries tax is your personal tax on employment income and director’s fees, at progressive rates up to 17% or the 15%/16% standard rate.
Dividends are not taxed in your hands because the company has already paid profits tax on the underlying profits. A founder-director often deals with both: salary draws salaries tax; retained profits distributed as dividends do not.
Our how a director gets paid guide compares salary, dividends, and director’s loan account trade-offs.
There is no capital gains tax, but the IRD can treat gains as assessable profits if buying and selling crypto is a trade or business.Occasional personal disposals are treated differently from active trading. Document your activity and get advice if volumes are material.
Personal assessment is an optional IRD election that assesses your total income (salaries, sole-prop profits, property) together in one calculation. You elect on BIR60 when it produces a lower tax bill than assessing each income type separately. It is most useful when you have losses in one category (for example, rental or sole-prop losses) that can offset income in another. You cannot use it if you are a partner in a partnership assessed separately.
It depends how you operate.
- Sole proprietorship or freelance trade:profits tax at 7.5% / 15%, reported on BIR60 Part 5
- Employment-style income from a client who controls your work: salaries tax at progressive rates up to 17%
Most freelancers register as sole proprietors and file profits tax on business income. If you invoice as an individual without a company, you still need a business registration certificate and must keep records of all receipts and expenses.
