Speak to an advisor: +852 5803 2409
Register with Sleek and subscribe to accounting to save HK$2000 OFF T&C apply

Get

HK$2000 OFF

when you

 when you register your company with Sleek

and subscribe to our accounting plans.

register your company with Sleek and subscribe to our accounting plans.

Resources

Two-Tiered Profits Tax Rates Regime in Hong Kong

6 minute read


The Inland Revenue Bill 2017 (Profits Bill) was amended three years ago to make the Hong Kong tax environment more competitive.

The main reasons why the Profits Tax bill was introduced is to promote economic development while maintaining a simple and low tax regime at the same time.

Below you will find more in-depth information regarding this tax rate regime.

Overview:

Why was it designed?

As previously mentioned, the key objectives of this bill were to maintain a competitive tax system and thus promote economic development while keeping a simple and low tax regime.

The government designed the two-tiered profit tax Hong Kong regime to:

  • Reduce the overall tax burden on enterprises, especially for small and medium companies.
  • Enable companies to reinvest tax savings in upgrading hardware and software to boost their overall operations and efficiency.
  • Allow more successful social enterprises to pursue their social objectives by alleviating their tax burden.
  • Improve the status of Hong Kong as an appealing investment jurisdiction.

The two-tiered profits tax regime applies to both corporations and unincorporated businesses. It came into effect in the 2018/19 year of assessment.

Who is qualified? Does it vary by citizenship?

Every entity with profits chargeable to Profits Tax in Hong Kong can qualify for the two-tiered profits tax rates. However, this does not include companies that have a connected entity nominated to use the two-tiered tax rates.

If the company has one or more connected entities at the end of the basis period of the entity for the relevant year of assessment, then the two-tiered profits tax rates only apply to that which has been nominated to receive the two-tiered rates.

Other entities do not qualify for the two-tiered rates and must pay the standard tax amount.

In addition, it is important to note that these propositions do not vary by citizenship. Every business in Hong Kong has to follow the laws of the regional governing authorities.

What is a connected entity?

A connected entity is an entity that:

  • Has control over the other entity.
  • Is connected and controlled by the same entity.

If the first entity is a natural person with a sole proprietorship business, the other entity is the same person with a different sole proprietorship business.

Can more entities use two-tiered profits tax rates?

This is not possible according to the current rules.

An entity can only use the two-tiered profits tax rates if no other connected entity has been elected to use them for the given year of assessment.

However, another connected entity can use the two-tiered rates during a different year of assessment, provided they meet all other conditions.

So, Entity A could claim them one year, and Entity B could claim them the next year – in which case Entity A has to use the standard tax rates.

Now that we have covered the basics, let’s move on to the rules of this tax rate regime.

The rules of Two-Tiered Profits Tax Rates Regime

The regime in question that commenced on 1 April 2018 has the following tax rates:

Assessable profits Corporations Unincorporated businesses
First HK$2 million 8.25% 7.5%
Over HK$2 million 16.5% 15%

As you can see, for corporations, the first HK$2 million of profit earned by a company will be taxed at half the current tax rate (8.25%) whilst the remaining profits will continue to be taxed at the regular 16.5% tax rate. For unincorporated businesses, the first HK$2 million of profits earned will be taxed at half of the current tax rate (i.e., 7.5%) whilst the remaining profit will be taxed at the existing 15% tax rate.

Take a look at the enterprises that are excluded from the two-tiered profiles tax regime. This is done to avoid double benefits.

  • Enterprises electing the preferential half-rate tax regimes (professional reinsurance companies, captive insurance companies, etc.).
  • The assessable profits for sums received by or accrued to holders of qualifying debt instruments as interest, gains, or profits should already be taxed at half the rate (7.5% or 8.25%).

An anti-fragmentation measure was implemented to prevent corporate activities from being divided among a large number of companies that could benefit from the lower tax rate.

Each group has to nominate only one company in a body of companies to benefit from the progressive rate.

Restrictions

It is worth underlining that only one company in a group of companies (owned by the same entity) located in Hong Kong can adopt two-tier tax rates.

The remainder of connected companies of the group shall remain on the standard tax rate which stands at 16.5%.

Let’s move on and see what amendments have been made to the Inland Revenue Ordinance following the introduction of the bill.

Wrap Up

The reasoning behind the introduction of this regime was simple — if global tax rates decrease, HK has to follow the trend.

That is the only way to attract foreign investments if the region plans to remain an appealing destination for entrepreneurs and businessmen from all around the globe.

The Profits Tax bill is a valuable economic aid for small and medium enterprises in the region. It is also beneficial for the Hong Kong tax system since it helps to maintain its position as Asia’s leading international business centre.

All in all, this is an important and constructive regime that every responsible business owner should try to take full advantage of. So, do not hesitate to incorporate your Hong Kong company.

If there is anything unclear or uncertain, feel free to contact Sleek for more information. If you need assistance with the incorporation process, you can also contact Sleek for help.

Ready to grow your business?
Our expert team is here to help you. Explore our accounting services or contact our team to get personalised advice today.

Start a business in less than 3 hours with us. Talk to our experts today.

Subscribe to our newsletter

Our jam-packed newsletter covers monthly compliance updates, upcoming events and exclusive offers

Other articles that might interest you

Related content

What is unique business identifier (UBI) and what every hong kong limited company needs to know

Phasing out of Company Registration Number: What is Unique Business Identifier and What Every Hong Kong Limited Company Needs to Know

The Unique Business Identifier (UBI) system is intended to provide a streamlined approach for businesses operating in Hong Kong, increasing communication effectiveness between them and government departments. This blog post delves into what this means for companies here. How can it help improve business operations and ensure they remain competitive within this rapidly changing commercial environment?

top feng shui for business success 2024

Maximize Prosperity: Top Feng Shui for Business Success 2024

As the Wood Dragon Year approaches, businesses worldwide are eager to harness its energy to maximize prosperity and success. In this blog post, we explore the ancient Chinese practice of Feng Shui for business success 2024, which offers a wealth of strategies to help businesses thrive in the dynamic and transformative energy of the Wood Dragon Year. From understanding the Wood Dragon energy to optimizing office space and aligning with the Fire element, let’s delve into the world of Feng Shui and uncover its secrets to business success.

complete guide to business registration

Your Comprehensive Guide to Business Registration in Hong Kong

Are you considering expanding your business horizons and tapping into the thriving market of Hong Kong? With its strategic location, business-friendly environment, and robust legal framework, Hong Kong is an attractive destination for entrepreneurs and investors alike. But before you can start your business ventures in this dynamic city, you must first understand the ins and outs of business registration in Hong Kong.

Contact us

We’d love to help. Share your contact details and we’ll call you back

Contact us

We’d love to help. Share your contact details and we’ll call you back

We are here to help you!

In the beginning, the whole matter may seem complex to you. If that is the case, we are here to help. Take a look at our incorporation services or contact our team to find out more information

Start a business in less than 3 hours with us. Talk to our experts today.

WhatsApp Us

Get HK$2000 off on
your first Sleek
service purchase!

Offer valid when you register your company with Sleek and subscribe to our accounting OR audit and tax plans. T&Cs apply. Privacy policy.

Terms and Conditions of the Promotion:

Before participating in this promotion, you must carefully read and agree to abide by the following terms and conditions.

  1. Eligible Users: To enjoy this offer, customers must purchase Incorporation package with registered address and audit and tax/accounting services at the same time. Valid customers will receive a fee waiver of HKD 2,000.
  2. Promotion Period: This promotion is valid from Jun 19-Jul 2, 2023. Sleek reserves the right to end this promotion at any time without prior notice to customers.
  3. Fees and Payment: Customers must pay the service fees according to Sleek’s standard payment terms. The HKD 2,000 waiver will be applied as a discount on the customer’s invoice.
  4. Governing Law and Jurisdiction: These terms and conditions shall be governed and construed in accordance with the laws of Hong Kong. Any dispute arising out of or in connection with these terms and conditions shall be subject to the exclusive jurisdiction of the courts of Hong Kong.
  5. Confidentiality: Sleek shall treat all information provided by the customer as confidential and shall not disclose such information to any third party, except as required by law or with the customer’s consent.
  6. Limitation of Liability: To the extent permitted by law, Sleek shall not be liable for any direct, indirect, or consequential loss or damage arising out of this promotion.
  7. Disclaimer: To the extent permitted by law, Sleek shall not be responsible for any loss or damage arising from the customer’s use of this promotion. Sleek does not guarantee the accuracy, completeness, reliability, timeliness, suitability, or availability of the website and its content. Sleek reserves the right to change the website and its content at any time without prior notice to customers.
  8. Cancellation of Orders: If customers wish to cancel an order, they must contact Sleek’s customer service department within 24 hours of submitting the order. Orders cannot be cancelled if they have already been processed
  9. Links to Third-Party Websites: Sleek’s website may contain links to third-party websites that are not under Sleek’s control. Sleek is not responsible for the content, privacy policies, or practices of third-party websites and does not endorse or recommend them. Customers should carefully read the terms and conditions and privacy policies of any third-party website before using it.
  10. Accuracy of Registration Information: Customers warrant that all registration information provided is accurate, complete, and up-to-date. If a customer’s registration information changes, the customer should update their account information promptly. Sleek shall not be liable for any loss or damage arising from the customer’s provision of inaccurate or incomplete registration information.
whatsapp icon

Chat with us on WhatsApp from your mobile

hk_whatsapp_qr_2

30 Days Money Back Guarantee

Our refund policy:

We care about you – within 30 days from your purchase, if you’re unhappy with our services, we’ll refund our fee. Email or call us, and we’ll process the refund within five working days.

What it doesn’t cover:

We will not be able to refund Government fees once the application has been submitted, nor any third-party processing fees.

When it applies:

We cannot guarantee any specific legal outcomes when you use our services. For instance, a company registration might be filed correctly but still get rejected by the Company Registry for reasons beyond our control. We can only refund our fees for issues we are directly responsible for. In the case that you purchase a service and later change your mind, we can’t issue a refund.

Our customer support team is at your disposal for any questions or issue you may face.

Need help?

Our sales team is available from Mon - Fri 9am to 7pm (Hong Kong Time)

Let's get in touch

Book a time with our experts to guide you in finding the best solution.