Profits Tax in Hong Kong

Profits Tax in Hong Kong

Profits Tax is a cornerstone of Hong Kong's tax system, levied on the net profits of companies, businesses, and trade operations carried out within the city.

What is considerable taxable profits?

Taxable profits involve the net profits derived from Hong Kong sources. These include:

  • Trading Profits: Income earned from business activities and trade operations conducted within Hong Kong.
  • Profits from Services: Income generated from providing services within the city.
  • Profits from Property: Gains from the sale of property and rental income.
  • Interest, Dividends, and Royalties: Income from these sources, subject to specific provisions. 

The Profits Tax rates for corporations and unincorporated businesses are 16.5% and 15% respectively from the year of assessment 2008/09 onwards.

With effect from the year of assessment 2018/19, the tax rates for the first $2 millions of assessable profits for corporations and unincorporated businesses eligible for two-tiered tax rates are lowered to 8.25% and 7.5% respectively.

Here's a simple example to illustrate how the two-tiered tax rates work for a corporation with a profit of 3 million HK$:

  1. First 2 million HK$:
    • Tax rate: 8.25%
    • Profit: 2,000,000 HK$ (2 million)

  2. Remaining amount (1 million HK$):
    • Tax rate: 16.5%
    • Profit: 1,000,000 HK$ (1 million)


Are there any exemptions?

Dividends received from a corporation which is subject to Hong Kong Profits Tax, as well as amounts already included in the assessable profits of other persons chargeable to Profits Tax (e.g. shares of profits from joint ventures) are excluded from the assessable profits of the recipient.

What is allowed as deduction?

Generally, all expenses, to the extent to which they have been incurred by the taxpayer in the production of chargeable profits, are allowed as deductions.

In computing the assessable profits, deduction is specifically prohibited in respect of the following:

  • Domestic or private expenses and any sums not expended for the purpose of producing the profits.
  • Any loss or withdrawal of capital, the cost of improvements and any expenditure of a capital nature.
  • Any sum recoverable under insurance or contract of indemnity.
  • Rent of or expenses relating to premises not occupied or used for the purpose of producing the profits.
  • Taxes payable under the IRO, except Salaries Tax paid in respect of employees’ remuneration.
  • Any remuneration or interest on capital or loans payable to or, subject to section 16AA of the IRO, contributions made to a mandatory provident fund scheme in respect of the proprietor or the proprietor’s spouse or, in case of a partnership, its partners or their spouses

Can loss be carried forward?

Losses made in an accounting year are to be carried forward and set off against future profits of that trade but a corporation carrying on more than one trade may have losses in one trade offset against profits of the other. An individual who incurs a trading loss and who elects for Personal Assessment will have the loss allowed as a deduction from his total income.

Here's an example to illustrate how a company's losses can be carried forward and set off against future profits:


Year X:


Company A incurs a loss of 100,000 HK$.


Year X+1:


Company A generates a profit of 50,000 HK$.


In this scenario, Company A can carry forward the loss from Year X and use it to offset the profit in Year X+1. Here's how it works:

Company A can use the cumulative loss from Year X to offset the profit in Year X+1. So, the taxable income for Year X+1 would be:

Taxable Income = Profit (50,000 HK$) - Cumulative Loss from Year X (100,000 HK$) = -50,000 HK$

Since the taxable income is negative, Company A doesn't have to pay any profit tax in Year X+1.
The remaining cumulative loss can then be carried forward to offset future profits in subsequent years until it is fully utilized or until the company starts making consistent profits.


Declaring Profit Tax

The process of declaring Profits Tax involves several key steps:

  • Profits Tax Return: Companies must complete and submit a Profits Tax Return (Form BIR52) to the Inland Revenue Department (IRD).
  • Documents Submission: Along with the return, supporting documents like financial statements, auditor's reports, and other relevant records must be submitted.
  • Assessment: The IRD assesses the submitted information to determine the tax liability.

Profit Tax Declaration Deadline

Profits Tax Return should be filed:

  • Within 3 months from the date of issue for corporations;
  • Within 4 months for unincorporated businesses and individuals.

Double Taxation Relief

Hong Kong has signed a network of Double Taxation Agreements (DTAs) with numerous jurisdictions such as
The Mainland of China, the Macao Special Administrative Region and the following jurisdictions: Austria, Belarus, Belgium, Brunei, Cambodia, Canada, Czech, Estonia, Finland, France, Georgia, Guernsey, Hungary, India, Indonesia, Ireland, Italy, Japan, Jersey, Korea, Kuwait, Latvia, Liechtenstein, Luxembourg, Malaysia, Malta, Mexico, Netherlands, New Zealand, Pakistan, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, South Africa, Spain, Switzerland, Thailand, United Arab Emirates, United Kingdom and Vietnam. These agreements prevent double taxation on income earned in both Hong Kong and the other contracting jurisdiction.

Anti-Avoidance Rules

Hong Kong employs various anti-avoidance rules to prevent abuse of the tax system. These rules ensure that transactions are conducted genuinely for business purposes and not solely for tax evasion.


Profits Tax in Hong Kong is a fundamental component of the city's fiscal structure. By understanding the scope of taxable profits, the declaration process, deadlines, rates, allowances, and anti-avoidance measures, businesses can ensure compliance with tax regulations while optimizing their financial management strategies.

As tax laws and regulations may evolve, contact us to know more and staying informed about the latest updates about the Profits Tax landscape effectively.

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