- The rate is 8.25% then 16.5%. A Hong Kong company pays 8.25% Profits Tax on its first HK$2 million of assessable profits, and 16.5% on the rest.
- The first HK$2M is always at 8.25%. Even if you earn far more, the lower rate still applies to the first HK$2M — you don’t lose it by crossing the threshold.
- Unincorporated businesses pay less. Sole proprietorships and partnerships pay 7.5% then 15% — half the corporate rates.
- Only one company in a group gets the lower tier. If you run connected entities, just one can claim the two-tiered rate each year — the group must elect which.
- Low rate is not the same as offshore exemption. The two-tiered rate reduces tax on Hong Kong-source profits. The offshore regime can exempt non-Hong Kong profits entirely. They’re different things.
If you operate a business in Hong Kong, the primary corporate tax calculation is straightforward: you pay 8.25% on your first HK$2 million of assessable profits, and 16.5% on any profit above that threshold. This system is known as the two-tiered profits tax rates regime, and it significantly lowers the tax burden for small and medium-sized enterprises (SMEs).
However, qualifying for the lower rate involves meeting specific criteria. Multi-entity business owners frequently misinterpret the rules surrounding “connected entities,” which can unintentionally increase a group’s overall tax liability.
In this guide, you’ll learn:
- The two-tiered rates and how the HK$2M threshold works
- A worked example so you can estimate your own tax bill
- Who qualifies for the 8.25% rate — and who doesn’t
- The connected-entity rule that catches out multi-company founders
- Why the low rate is not the same as offshore exemption
What is Hong Kong’s corporate tax rate in 2026?
Hong Kong’s corporate profits tax rate is 8.25% on the first HK$2 million of a company’s assessable profits and 16.5% on all profits exceeding that amount. This two-tiered framework has been the standard since the 2018/19 year of assessment. Unincorporated businesses, such as sole proprietorships and partnerships, follow a parallel two-tiered structure at lower rates.
The standard rates apply as follows:
| Business type | First HK$2 million of assessable profits | Assessable profits above HK$2 million |
| Corporation (Limited Company) | 8.25% | 16.5% |
| Unincorporated (Sole Proprietorship / Partnership) | 7.5% | 15% |
Hong Kong does not levy capital gains tax, value-added tax (VAT), or goods and services tax (GST). For an initial business roadmap, you may review the cost of starting a Hong Kong company or explore the broader framework of Hong Kong’s tax system. If you are ready to set up a new legal entity, you can choose to incorporate a Hong Kong company.
Worked example: how much tax will my company owe?
A Hong Kong company with HK$3 million in assessable profits owes HK$330,000: 8.25% on the first HK$2 million (HK$165,000) plus 16.5% on the remaining HK$1 million (HK$165,000).
| Assessable profits | Profits tax | Effective rate |
|---|---|---|
| HK$1.5 million | HK$123,750 | 8.25% |
| HK$3 million | HK$330,000 | 11% |
| HK$5 million | HK$660,000 | 13.2% |
- Under HK$2 million: everything is taxed at 8.25%.
- Above HK$2 million: your effective rate rises towards 16.5%, but never reaches it.
- Sole proprietorships and partnerships: the rates are 7.5% and 15%, so HK$3 million in profits means HK$300,000 in tax.
For 2025/26 only, the one-off reduction takes up to HK$3,000 off these figures.
Who qualifies for the two-tiered tax rate?
Most Hong Kong businesses qualify automatically. There’s no application: the IRD applies the lower tier when it assesses your profits tax return. The exception is a group of connected entities, where only one nominated business gets the lower tier.
| Your situation | Two-tiered rate? |
|---|---|
| Standalone company | Yes, automatically (8.25% / 16.5%) |
| Sole proprietorship or partnership | Yes, automatically (7.5% / 15%) |
| Group of connected entities | Only the one entity the group nominates |
The rates apply to your assessable profits, after deductions. See how assessable profits are calculated.
What counts as “connected”?
Two businesses are generally connected if:
- One controls the other: for example, a parent and its subsidiary.
- Both are controlled by the same person or company: for example, you own more than 50% of two Hong Kong limited companies.
What does the rule cost a group?
Take two connected companies, each with HK$1.5 million in assessable profits:
| Profits tax | |
|---|---|
| Company A (nominated, 8.25%) | HK$123,750 |
| Company B (not nominated, 16.5%) | HK$247,500 |
| Group total | HK$371,250 |
If both companies could use the lower tier, the group would pay HK$247,500. The rule costs it HK$123,750. Each company that isn’t nominated can lose up to HK$165,000 in tax savings.
Which entity should you nominate?
- Profits of HK$2 million or more: any entity at this level saves the full HK$165,000, so nominating any one of them gives the same result.
- All under HK$2 million: nominate the one with the highest assessable profits.
- Review every year: profits change, so the best choice can change too. The nomination is made in the profits tax return.
If you run a group of connected entities, the one that should claim the two-tiered rate is usually whichever company expects the highest profits that year — because the 8.25% saving on the first HK$2 million is worth most to the entity that would otherwise pay the most. The nomination is made each year of assessment, so you can change it as your companies' profits shift.
Two-tiered tax rates vs offshore exemption: what’s the difference?
The two-tiered rate lowers the tax on your Hong Kong-sourced profits. An offshore tax exemption removes Hong Kong tax on profits sourced outside Hong Kong. They’re separate, and you can use both.
| Two-tiered rate | Offshore exemption | |
|---|---|---|
| What it does | 8.25% on the first HK$2 million of profits, 16.5% after that | No Hong Kong tax on offshore-sourced profits |
| How you get it | Automatic | You claim it in your profits tax return |
| Evidence needed | None | Proof that the operations producing the profit took place outside Hong Kong |
| IRD review | Standard assessment | Often detailed questions before the claim is accepted |
Can you use both? Yes. If part of your profits is offshore, the two-tiered rate applies to the Hong Kong-sourced part that’s still taxable. Offshore claims need strong evidence, so speak to a tax professional before you file one.
Is there any profits tax relief in 2026?
Yes, for the 2025/26 year of assessment. Profits tax for that year is reduced by 100%, capped at HK$3,000 per case. The IRD applies it automatically to your final assessment, so you don’t need to apply.
| Profits tax for 2025/26 | Reduction | You pay |
|---|---|---|
| HK$2,500 | HK$2,500 | HK$0 |
| HK$123,750 | HK$3,000 | HK$120,750 |
It’s a one-off concession, not a change to the tax rates. The two-tiered rates of 8.25% and 16.5% stay the same, and a small business with a modest tax bill benefits most.
How do you calculate and file your Hong Kong profits tax?
Apply the two-tiered rates to your assessable profits, which are worked out from your audited financial statements. You then report the figure on your profits tax return (BIR51), usually due within one month of the IRD issuing it.
- Keep your books up to date: record and reconcile transactions throughout the year.
- Get your accounts audited: every Hong Kong company needs audited financial statements.
- Adjust for tax: add back non-deductible items and claim allowable tax deductions.
- File the return: submit BIR51 by the deadline.
| Situation | Filing deadline |
|---|---|
| Return issued (usually early April) | Within 1 month of issue |
| First return for a new company (issued about 18 months after incorporation) | Within 3 months of issue |
| Filed through a tax representative | Later, under the IRD’s block extension scheme, depending on your financial year-end |
How Sleek helps with your Hong Kong Profits Tax filing
Sleek manages the entire corporate tax lifecycle—from compiling your accounting books and coordinating statutory audits to calculating your assessable profits and filing your final returns. Our specialized services ensure your business utilizes all eligible tax frameworks efficiently.
With Sleek, you get:
- Accurate tax filing: We prepare your financial records, adjust for legal deductions, and ensure your profits tax returns are submitted accurately and on time.
- Connected-entity management: If you manage a group of entities, our team coordinates the statutory nominations to apply the two-tiered tax brackets to the most suitable entity.
- Objective offshore assessments: We review your operational supply chains to provide a realistic assessment of your offshore exemption viability, reducing the risk of unexpected IRD audits.
- Consolidated corporate support: We house your bookkeeping, audit coordination, and corporate tax management under a single qualified team operating under TCSP license TC006483.
By putting your bookkeeping, audits, and tax returns under one licensed team, you can keep your company fully compliant with the IRD while freeing up your time to focus on running your business.
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