- 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 corporation with HK$3 million in assessable profits will owe a total of HK$330,000 in profits tax. This sum is calculated by applying 8.25% to the first HK$2 million (resulting in HK$165,000) and 16.5% to the remaining HK$1 million (resulting in HK$165,000).
The calculation splits into two clear steps:
| Profit tier | Assessable profit amount | Tax rate | Tax due |
| First Bracket | HK$2,000,000 | 8.25% | HK$165,000 |
| Second Bracket | HK$1,000,000 | 16.5% | HK$165,000 |
| Total Net Result | HK$3,000,000 | — | HK$330,000 |
By comparison, a smaller business generating HK$1.5 million in assessable profits remains entirely within the first bracket. Its total tax bill would equal HK$123,750 (HK$1.5 million multiplied by 8.25%), with no portion of its earnings touching the higher 16.5% tier.
Who qualifies for the two-tiered tax rate?
Most standalone corporations and unincorporated businesses operating in Hong Kong qualify for the two-tiered profits tax rate automatically. The primary exception applies to businesses classified as connected entities, where multiple companies operate under shared ownership or control.
If your business is standalone, you receive the 8.25% tier by default when your profits tax return is processed—there is no formal upfront application required. The rate is calculated based on your final assessable profits. To learn more about identifying deductible business expenses in Hong Kong, you can explore how assessable profits are calculated.
The connected-entity rule: Restrictions for corporate groups
If your business is part of a group of connected entities, only one single entity within that group can claim the two-tiered tax rate during a given year of assessment. The corporate group must formally elect which entity will receive the lower rate. Every other connected business in the group is taxed at the flat standard rate of 16.5% (or 15% if unincorporated) starting from its very first dollar of profit.
This rule is a critical consideration for founders managing multiple companies.
What “connected’ means
Two business entities are generally considered “connected” if one entity holds a controlling interest in the other, or if both entities are managed and controlled by the same parent company or individual owner. If you register two separate limited companies in Hong Kong under your name, they are legally connected.
Why it matters
Failing to account for the connected-entity rule can lead to significant tax under-budgeting. Because only one nominated company can utilize the 8.25% tier, your second company will face a flat 16.5% tax rate on its initial HK$2 million of profit, omitting the standard HK$165,000 tax break. Corporate groups typically evaluate their portfolio annually to allocate the lower tier to the most profitable eligible entity.
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 exemptions: What is the difference?
The two-tiered tax rate reduces the amount of tax you pay on profits generated directly within Hong Kong, whereas an offshore tax exemption removes Hong Kong tax entirely from profits sourced outside the region. These are entirely separate tax mechanisms, and a company must evaluate them independently.
The operational differences include:
- Two-tiered tax rates: This framework applies automatically to locally sourced, taxable profits up to the HK$2 million threshold.
- Offshore exemption: This requires a proactive claim demonstrating that your core business operations, contracts, and logistics take place completely outside Hong Kong.
Securing an offshore claim is a rigorous process that demands comprehensive transactional evidence. If your business model generates non-Hong Kong revenue, you should review Hong Kong’s offshore profits tax exemption and consult a tax professional before filing a claim.
Is there any profits tax relief for 2026?
For the 2025/26 year of assessment, the Hong Kong Legislative Council officially enacted a one-off profits tax reduction of 100%, capped at HK$3,000 per case. This measure was passed into law in May 2026 to provide immediate, targeted relief to businesses.
While this budget measure provides a modest cash-flow benefit for small businesses, it operates as a temporary concession rather than a structural change to the underlying tax brackets.The reduction is automatically applied by the IRD to your final tax assessment, so businesses do not need to file a separate application.
How do you calculate and file your Hong Kong profits tax?
You calculate your final tax liability by applying the two-tiered tax rates to your net assessable profits, which are derived directly from your annual audited financial statements. This calculation is reported on the formal Profits Tax Return (PTR) and must generally be submitted to the IRD within one month of issuance.
Determining the final tax due requires completing several steps:
- Conducting full corporate bookkeeping and reconciliation.
- Preparing your statutory annual audited accounts.
- Adjusting your net book profits for allowable tax deductions and exclusions.
- Filing the completed PTR within the required Hong Kong tax filing deadlines.
For a comprehensive view of the timeline, you can review the steps for filing your Profits Tax return.
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.
450,000
businesses worldwide.
from 4,100+ reviews.
satisfaction rate from
16,000 surveyed clients.
