Hong Kong’s tax system is built around the principles of
simple and low taxation and is designed to support international business activity.
Corporate profits taxTwo-tier tax rate for companies:- 8.25% on the first HKD 2 million of assessable profits;
- 16.5% on profits exceeding this threshold.
For unincorporated businesses (sole proprietorships and partnerships), reduced rates of
7.5% and 15% apply.
Hong Kong does not tax worldwide income. Only profits sourced in Hong Kong are subject to profits tax.
Other taxes relevant for business- No VAT / GST / sales tax – business operations are not subject to value-added or sales taxes.
- No capital gains tax – gains from the sale of shares or assets are generally not taxable.
- No withholding tax on dividends and interest – payments of dividends and interest are not subject to withholding tax, regardless of the recipient’s residency.
- Royalties – payments to non-residents are subject to an effective tax rate of 2.475%–4.95% (tax is calculated on 30% of the royalty amount under the two-tier profits tax system).
- Property and stamp duties – mainly apply to real estate and specific transactions; for standard trading or service companies, these taxes are typically not material.
Accounting and Audit RequirementsEvery Hong Kong company (except formally declared dormant companies) is required to:
- Maintain accounting records and retain primary documentation for at least 7 years.
- Prepare annual financial statements in accordance with HKFRS or IFRS.
- Undergo a mandatory audit conducted by a licensed auditor who is a member of the Hong Kong Institute of Certified Public Accountants (HKICPA). Audit exemption applies only to dormant companies.
Tax filings and annual obligations- The Inland Revenue Department (IRD) issues the Profits Tax Return annually; the first return is usually issued around 18 months after incorporation.
Together with the tax return, the company must submit:
- audited financial statements;
- tax computations and supporting schedules.
In addition:
- the Annual Return must be filed with the Companies Registry each year;
- the Business Registration Certificate must be renewed annually.
Compliance with Hong Kong tax and reporting requirements is essential for maintaining a strong corporate reputation, successfully passing compliance reviews, and ensuring stable relationships with banks and payment service providers.