All forms of business in Hong Kong, including corporations, partnerships, sole proprietorships, and certain bodies of persons, may be subject to profits tax if they carry on a trade, profession, or business in Hong Kong and derive profits arising in or derived from Hong Kong from that business. Hong Kong remains attractive to many entrepreneurs because of its territorial tax system and relatively low profits tax rates.
A Hong Kong company is not automatically “exempt” simply because it is incorporated in Hong Kong or because its customers are overseas. The key question is whether the profits are Hong Kong-sourced under the Inland Revenue Ordinance and IRD sourcing principles. This article explains how that works in practice and where exemptions or exclusions may apply.
What Is Corporate Tax In Hong Kong?
Corporate tax in Hong Kong is generally referred to as profits tax. For corporations, profits tax is charged on assessable profits arising in or derived from Hong Kong from a trade, profession, or business carried on in Hong Kong. Corporations filing Profits Tax Return Form BIR51 are generally required to submit the return together with financial statements, tax computation, and any applicable supplementary forms.
Profits tax returns are also relevant to persons other than corporations, such as sole proprietorships and partnerships, though the applicable form and filing mechanics differ. Hong Kong’s system applies the territorial source principle, so residence alone does not decide whether profits tax is payable. A non-resident can still be taxable if it carries on business in Hong Kong and earns Hong Kong-sourced profits, while profits sourced outside Hong Kong are generally not taxable unless a specific deeming rule applies.
In broad terms, a corporation is liable to profits tax where it carries on a trade, profession, or business in Hong Kong and the profits in question arise in or are derived from Hong Kong. The source of profits depends on what the taxpayer has done to earn the profits and where the relevant profit-producing operations took place.
Features Of The Hong Kong Corporate Tax System
- Territorial tax system
- Relatively low profits tax rates
- Simple rate structure compared with many jurisdictions
- Availability of selected tax incentives and concessionary regimes for qualifying activities
- Offshore profits are not taxed merely because they are remitted to Hong Kong; the real issue is source, subject to specific anti-avoidance and foreign-sourced income exemption rules where applicable
Hong Kong Corporate Tax Returns
Profits tax returns for corporations are normally issued by the Inland Revenue Department in early April each year. In general, a return must be completed and filed within 1 month from the date of issue unless an extension applies. For taxpayers using a tax representative, the IRD’s Block Extension Scheme may extend the filing deadline, and a further 1-month extension may be available for eligible electronic filing.
For new businesses, the IRD normally issues the first profits tax return about 18 months after commencement. However, if a business has become chargeable to profits tax before receiving its first return, it must notify the IRD within the prescribed time rather than wait indefinitely for a return.
Filing practice has also tightened. If your business has any gross income during the basis period, you must submit the profits tax return together with supporting documents, including financial statements and tax computation. Small corporations and businesses with gross income not exceeding HK$2 million are no longer allowed to file without supporting documents. Relevant supplementary forms must be submitted electronically where applicable.
Corporate Profit Tax Rate In Hong Kong
Profits tax is assessed on assessable profits after applying the Inland Revenue Ordinance rules, including permitted deductions, tax adjustments, and exclusions for non-taxable items where applicable. The standard profits tax rate for corporations remains 16.5%, while the standard rate for unincorporated businesses remains 15%. Under the two-tiered profits tax rates regime, the first HK$2 million of assessable profits is taxed at 8.25% for corporations and 7.5% for unincorporated businesses, with the balance taxed at the standard rates.
The two-tiered regime does not automatically benefit every entity in a group. If an entity has connected entities, only one nominated entity may generally enjoy the two-tiered rates for the relevant year of assessment; the others are taxed at the full standard rate unless another rule applies.
| Assessable Profits | Tax Rate For Corporations | Tax Rate For Unincorporated Businesses |
|---|---|---|
| First HK$2 Million | 8.25% | 7.5% |
| Beyond HK$2 Million | 16.5% | 15% |
What Is Hong Kong Corporate Tax Exemption?
In practice, what many businesses call “Hong Kong corporate tax exemption” usually refers to one of three different concepts:
(1) profits that are not taxable because they are not Hong Kong-sourced under the territorial source principle;
(2) specific statutory exemptions or concessionary regimes under the Inland Revenue Ordinance; or
(3) one-off tax reductions announced in a Budget for a particular year of assessment. These are not the same thing and should not be treated interchangeably.
Hong Kong uses a territorial taxation system. Broadly, profits sourced outside Hong Kong are not chargeable to Hong Kong profits tax. However, there is no blanket exemption simply because invoices are issued overseas, customers are overseas, or funds are received outside Hong Kong. The IRD will examine the operations that produced the profits and the location where those operations took place.
The article’s previous reference to an automatic exemption of up to HK$20,000 in profits tax for the 2019–20 fiscal year is outdated and should not be treated as a standing corporate tax exemption. Tax reductions of this kind are one-off Budget measures that vary by year. As of March 2026, the Government has legislated a 100% profits tax reduction for the year of assessment 2024/25 subject to a ceiling of HK$1,500 per case, and the 2026–27 Budget has proposed a 100% reduction for 2025/26 subject to a HK$3,000 ceiling, pending legislative amendments.
Hong Kong also has specific concessionary or exempt items in limited cases, for example certain qualifying debt instruments may enjoy exemption or concessionary treatment, and qualifying corporate treasury centres may access a concessionary profits tax rate under the relevant statutory regime. These are specialised rules and should be assessed case by case.
How Offshore Profits Claims Are Actually Reviewed
Many businesses describe the process as “applying for tax exemption,” but for ordinary trading or service income the more accurate concept is making an offshore profits claim in the profits tax return and supporting that claim if the IRD raises questions. The Inland Revenue Ordinance does not create a general “offshore company exemption.” Instead, taxability depends on the source of the profits and the profit-producing operations.
This means substance matters more than labels. For a trading business, the IRD commonly examines where contracts were negotiated, concluded, and executed, where suppliers and customers were sourced, and where purchase and sale activities were arranged. For a service business, the IRD looks closely at where the services were actually performed. For other profit streams, the source test may differ depending on the nature of the income.
Businesses should therefore keep contemporaneous records that match their sourcing position. Helpful documents often include contracts, invoices, shipping and logistics records, purchase orders, correspondence, board minutes, travel records, staff location records, and evidence showing where key decisions and operational steps took place. The return and supporting documents must also reconcile properly with the financial statements and tax computation filed with the IRD.
It is also important not to overstate the position. Having a Hong Kong company, Hong Kong bank account, or Hong Kong director does not automatically make all profits taxable, but neither does having overseas customers automatically make all profits offshore. Each profit stream should be tested on its own facts. Where the facts are mixed, the position may be contentious and should be documented carefully before filing.
Foreign-Sourced Income Exemption Regime And Other Current Compliance Points
Since 1 January 2023, Hong Kong’s foreign-sourced income exemption regime has applied to specified foreign-sourced income received in Hong Kong by members of multinational enterprise groups carrying on a trade, profession, or business in Hong Kong. Covered income initially included foreign-sourced interest, dividends, intellectual property income, and equity interest disposal gains. Since 1 January 2024, the regime has also expanded to cover disposal gains other than equity interest disposal gains. In-scope taxpayers may need to consider economic substance, participation exemption, nexus, or other statutory conditions before assuming the income remains exempt.
This regime does not replace the ordinary territorial source principle for all taxpayers and all income, but it is a critical overlay for cross-border groups. In other words, “foreign-sourced” does not always mean “tax-free” once the FSIE rules are engaged. Businesses with overseas passive income, disposal gains, or group structures should review their position carefully before filing.
Another practical update is filing compliance. The IRD now requires supporting documents even for small businesses with gross income during the basis period, and applicable supplementary forms must be filed electronically. In addition, in-scope multinational enterprise groups are moving into mandatory electronic filing for profits tax returns for years of assessment beginning on or after 1 April 2025. These procedural points do not by themselves decide taxability, but non-compliance can create delays, queries, and penalty risk.
How We Can Help?
Our accounting and tax professionals at Premia TNC will guide you on proper documentation to apply for Hong Kong corporate tax exemption. We have qualified and experienced accountants who can handle the complexities of regulatory requirements to ensure a smooth and safe tax filing.
We can also help you with other Hong Kong Company Incorporation services. Our tax experts will work directly with you to minimize your tax liabilities and maximize your tax savings. Reach out to us to get a quote or book consultation with us today
Frequently Asked Questions
What is the base period of income tax?
In Hong Kong, corporate income tax is calculated based on a year of assessment (YA). The year ending 31st March from 1st April the previous year is the year of assessment. The year that concluded on 31st March is the year of Assessment.
Generally, a YA’s assessable earnings are determined by the accounting period ending in that assessment year.
What documents are required to apply for Hong Kong corporate tax exemption?
For most businesses, there is no separate general application form for an ordinary offshore profits “exemption.” Instead, the position is usually taken in the profits tax return and supported with financial statements, tax computation, and evidence relevant to the source of profits. Depending on the facts, this may include contracts, invoices, bank records, shipping documents, correspondence, and records showing where profit-generating operations took place. If applicable supplementary forms are required, they must be submitted electronically.
