What Companies Really Pay in Hong Kong: 8.25%, 16.5%, or 15%?

Hong Kong’s headline corporate profits tax is a simple two-tier regime—8.25% on the first HK$2 million of profits and 16.5% above that—backed by a territorial system with no VAT, no tax on dividends or interest, and targeted industry concessions. But large multinationals now face a 15% global minimum via Hong Kong’s new top-up tax, and the refined foreign-sourced income rules can tax dividends, interest, IP, and disposal gains on receipt unless you meet substance or other tests.

Two-Tier Profits Tax in Hong Kong: How the 8.25%/16.5% System Works Now

Hong Kong taxes corporate profits at two rates:

• 8.25% on the first HK$2 million of assessable profits (half-rate tier)

• 16.5% on everything above that

This two-tier design applies per year of assessment (YA). If your company has connected entities (i.e., part of a group under common control), only one connected entity can elect to use the half-rate tier for that year; the others are charged at the standard 16.5%. Entities that elect certain concessionary regimes (like corporate treasury centres, aircraft leasing, ship leasing) don’t also get the two-tier treatment.

Quick math: If your Hong Kong company earns HK$5 million in profits, your tax bill is HK$660,000—HK$165,000 on the first HK$2M (8.25%) plus HK$495,000 on the remaining HK$3M (16.5%).

The simple stuff that matters: what Hong Kong doesn’t tax

Hong Kong remains structurally attractive because it does not levy:

• VAT/GST or sales tax

• Withholding tax on dividends or interest

• Capital gains tax (with caveats discussed below)

This is official policy: profits tax at 16.5% for corporations, no VAT/sales tax, no capital gains tax, and no WHT on dividends/interest. (Royalties are different; more on that later.)

It’s territorial—and now more nuanced

Hong Kong’s system is territorial: it taxes profits that arise in or are derived from Hong Kong, not worldwide income. Historically that was the end of the story.

Today, two global reforms alter the picture for many groups:

• Foreign-Sourced Income Exemption (FSIE), refined. If your Hong Kong entity (in a multinational group) receives foreign-sourced dividends, interest, IP income, or disposal gains in Hong Kong, those amounts can be taxed on receipt unless you meet a relevant exception—typically economic substance (for dividends/interest and non-IP disposal gains), nexus (for IP income), or a participation exemption (for some dividends and equity-disposal gains). There’s also intra-group transfer relief to defer tax on certain intragroup disposals. Effective from 1 January 2024 for the disposal-gains expansion. i

• 15% global minimum for big multinationals (Pillar Two). On 6 June 2025, Hong Kong enacted the Minimum Tax for Multinational Enterprise Groups Ordinance—implementing GloBE rules and a Hong Kong Minimum Top-up Tax (HKMTT) from YA 2025/26. In-scope MNE groups (revenue ≥ EUR 750m in at least two of the last four years) will be topped up to 15% on a jurisdictional basis under OECD-aligned rules and safe harbours. Phase-1 mandatory e-filing of profits tax returns applies to these groups for YA 2025/26 onward.

Bottom line: For SMEs and most standalone companies, the traditional two-tier rates still define your bill. For large groups, the effective rate can’t dip below 15% once GloBE applies.

The two-tier regime: nuts and bolts

Who qualifies? Any profits-taxable entity, except where (a) another connected entity already elected the two-tier rates that year, or (b) the entity elected certain concessionary regimes. A “connected entity” includes companies under >50% common control (votes, capital, or profits). Election is made in the profits tax return and is irrevocable for that YA.

When is the half-rate meaningful? The 8.25% tier meaningfully reduces tax for startups and SMEs with modest profits. In groups, choosing which entity takes the half rate is a straightforward tax-efficiency lever.

One-off break for YA 2024/25. Hong Kong granted a 100% reduction (waiver) of 2024/25 profits tax capped at HK$1,500 per business—helpful, but modest. It’s applied in the final assessment and does not reduce provisional tax for the same year.

Incentive regimes (where Hong Kong leans in)

Hong Kong couples broad simplicity with surgical concessions. Highlights:

• Corporate Treasury Centres (CTC): 8.25% concessionary rate on qualifying CTC profits (intra-group financing, cash management, etc.).

• Aircraft Leasing and Management: Lessors taxed at 8.25% on only 20% of net lease rentals (effective ~1.65% of gross); managers at 8.25% on qualifying profits.

• Ship Leasing: 0% for qualifying ship lessors; 8.25% for qualifying ship leasing managers.

• Patent Box: 5% profits tax on eligible IP income (for YAs beginning on/after 1 April 2023), subject to “nexus” requirements.

• Family Office (FOIV) Regime: 0% on qualifying investment profits of eligible family-owned investment holding vehicles (with conditions).

• Funds: The Unified Funds Exemption gives wide profits-tax exemptions to funds (onshore and offshore) investing in specified assets.

These regimes are usually mutually exclusive with the two-tier half-rate; the concession typically replaces the half-rate for that entity. Model the numbers before you elect.

FSIE, decoded: when foreign income becomes taxable in HK

Under the updated FSIE regime, certain foreign-sourced income becomes taxable upon receipt in Hong Kong by an MNE entity unless you meet an exception:

• Economic substance test (dividends, interest, non-IP disposal gains). For pure equity-holding entities, the test is lighter (governance, basic premises and people for holding and managing equity). Non-pure holding entities need adequate qualified employees and adequate operating expenditures in Hong Kong. You can outsource specified activities in Hong Kong if you retain monitoring and control.

• Nexus requirement (IP income). Only the portion of IP income that ties back to your own R&D (or qualifying acquired R&D) remains exempt—the rest may be taxed.

• Participation exemption (some dividends and equity-disposal gains), plus intra-group transfer relief to defer tax on certain intragroup disposals, subject to anti-abuse rules.

Practical takeaway: If your Hong Kong company in an MNE group receives overseas holding-company income, expect substance and documentation tests to be routine. Do not assume foreign dividends or gains are permanently out of scope.

Withholding tax: dividends and interest (no), royalties (yes—effectively)

• Dividends & interest: No Hong Kong WHT.

• Royalties: Hong Kong deems part of a royalty paid to a non-resident to be taxable Hong Kong profits. The effective rate for unrelated parties is often 4.95% (30% of the royalty deemed profits × 16.5%). For certain associates/IP scenarios, 100% of the royalty can be taxable, implying 16.5% effective. The payer must withhold an amount to cover the non-resident’s tax. Always check your fact pattern against the IRD’s practice note.

No VAT, no sales tax… and a little stamp duty

There’s still no VAT/GST in Hong Kong—one of its key attractions.

However, stamp duty can matter for transactions:

• Hong Kong stock transfers: duty cut to 0.1% per side (buyer and seller) from 17 Nov 2023—i.e., a combined 0.2%.

• Property transfers: ad valorem duty rules and various reliefs/exemptions apply; policy on residential measures shifted markedly in 2024–2025. (If property is your business, model stamp duty alongside profits tax.)

Deductions, capital allowances, R&D “super-deduction”

• R&D: Enhanced deductions allow 300% on the first HK$2 million of qualifying Type B R&D spend and 200% thereafter (Type A at 100% subject to rules). Documentation matters; the IRD has detailed guidance and forms.

• IP costs: Hong Kong allows deductions/allowances for prescribed intellectual property rights—with updated guidance on what qualifies and how to claim.

• Depreciation & buildings: Plant and machinery use pooling with initial/annual allowances; commercial/industrial buildings generally attract 4% annual allowances, and recent changes allow a deduction for lease reinstatement costs and remove the prior 25-year cap, effective YA 2024/25.

  
  

Losses and group treatment

Hong Kong allows loss carry-forward indefinitely, but no carry-back and no group loss relief: losses are stuck in the legal entity that incurred them (subject to limited merger rules). This simplicity means group structuring and the two-tier election become more valuable.

Filing, deadlines, and provisional tax (don’t be surprised by the cash timing)

• Profits Tax Return (BIR51 for corporations): Issued annually, typically 1 April each year, with return and supplementary forms due by prescribed deadlines (extensions via block arrangements are common through tax agents). The IRD publishes FAQs and notes every filing season.

• Provisional profits tax: Hong Kong runs an advance payment system—provisional tax is billed based on last year’s assessment and credited against your final tax when the return is processed. This is normal and not a double charge.

• Mandatory e-filing (for large MNEs): If you’re within Pillar Two scope, you must e-file BIR51/BIR52 for YAs beginning on/after 1 April 2025.

Treaties and cross-border relief

Hong Kong continues to add Comprehensive Double Taxation Agreements (CDTAs). As of September 2025, the government reports 53 CDTAs signed (with more under negotiation), broadening relief against foreign WHT and double taxation.

Common planning questions (with straight answers)

Q: Can I just book profits offshore and escape Hong Kong tax?

A: Not safely without robust source analysis, and FSIE can tax key passive income on receipt unless you meet substance/nexus/participation conditions. For MNEs, 15% is the floor anyway under GloBE.

Q: Should our group elect the half-rate or a concession (like CTC or patent box)?

A: Model both. The 8.25% half-rate applies only to the first HK$2M and only to one connected entity per year. Some concessions deliver a lower effective rate across a broader profit base (e.g., aircraft leasing mechanics, patent box at 5%, FOIV at 0%), but each has detailed eligibility and compliance.

Q: Are royalties “withholding-tax-free” like dividends and interest?

A: No. Royalties are a special case: Hong Kong deems part (or all) of the payment as Hong Kong-sourced profits for the non-resident recipient; you withhold to cover that tax (commonly 4.95% effective for third-party cases, up to 16.5% in associate/IP-migration scenarios).

Action checklist for 2025

1. Confirm your rate path. Two-tier election vs. concessionary regimes; map the group entity that should take the half-rate (if any).

2. Audit FSIE exposure. Trace inbound dividends, interest, disposal gains, and IP income; test for substance, nexus, or participation; document and (if helpful) seek advance ruling.

3. If in scope, model GloBE. Forecast top-up tax under HKMTT/IIR/UTPR, evaluate safe harbours, and get ready for mandatory e-filing from YA 2025/26.

4. Use deductions. Max out R&D super-deductions; revisit depreciation pools and updated building rules (including lease reinstatement costs).

5. Mind transaction taxes. Budget 0.1% per side stamp duty for stock transfers and check stamp-duty positions for property deals.

   
   

The bottom line

For founders and CFOs, Hong Kong’s corporate tax regime is still what it’s famous for: predictable rates, a light base, and targeted incentives. The world changed around it—GloBE now caps the game for big groups, and FSIE puts conditions on foreign passive income—but smart structuring and good compliance keep Hong Kong’s after-tax outcomes compelling.