Understanding accounting and tax in Hong Kong

After incorporation, there will be various tax obligations to manage, alongside meeting Hong Kong’s financial reporting and record-keeping requirements.

What is the corporate tax rate in Hong Kong?

Hong Kong’s corporate tax system, or profits tax as it is commonly referred to, follows a territorial basis of taxation. In other words, tax is generally levied only on profits arising in or derived from carrying on a trade, business or profession in Hong Kong. Profits from sources outside Hong Kong may still be chargeable to profits tax under Hong Kong's Foreign-Sourced Income Exemption (FSIE) regime, depending on the relevant exemption conditions and applicable rules.

In Hong Kong, corporations have two options for profits tax rates:

Single tier: Corporations are taxed at 16.5% on assessable profits and unincorporated businesses are taxed at 15%
Two-tier: The tax rate for the first HK$2 million of assessable profits is lowered for corporations and unincorporated businesses

The two-tier profits tax rate aims to reduce the tax burden of most taxpaying small and medium-sized enterprises (SMEs). For corporations, the first HK$2 million of profits will be taxed at 8.25% and the remaining profits will continue to be taxed at the existing 16.5% tax rate.

For unincorporated businesses, the first HK$2 million of profits will be taxed at 7.5% and the remaining profits will be taxed at the existing 15% tax rate.

Take note that if you are part of a group of connected entities, only one entity can enjoy the two-tier rate. For this purpose, the group will need to identify which entity will benefit from the two-tier rate and make the relevant election accordingly.

Basis period

Profits tax in Hong Kong is assessed in relation to a Year of Assessment (YA). For example, a YA may commence on 1 April 2026 and end on 31 March 2027. This would be referred to as YA 2026-27.

Filing due date

The Inland Revenue Department (IRD) of Hong Kong generally issues the profits tax returns on the first working day of April every year. The standard filing deadline is one month from the date the tax returns are issued. However, corporations can get an extension for filing their returns at a later date, provided that certain conditions are met.

As part of efforts to modernise its tax administration system, Hong Kong is also progressively introducing electronic filing (e-filing) for profits tax returns. Businesses filing electronically may apply for an additional one-month extension, subject to the applicable conditions.

The filing deadline may therefore be extended as follows for 2025/26 filing:

Normal issue date	For accounting year ended between	Extended due date	Extended due date for e-filing
First working day in April of the following YA	1 April to 30 November 2025	4 May 2026 (no extension)	4 June 2026
	1 December to 31 December 2025	17 August 2026	17 September 2026
	1 January to 31 March 2026	16 November 2026	16 December 2026

If you are a newly registered business, the IRD will issue your first profits tax return around 18 months after either the commencement of business operations or the date of incorporation.

When filing, you will typically need to submit a complete set of documents, which may include:

The relevant profits tax return form issued by the IRD
Supplementary forms issued by the IRD relating to your tax and financial data
Audited financial statements (i.e. audit report) for the relevant basis period
Tax computation showing how the assessable profits have been calculated
Other supporting documents and information as specified by the IRD

Key considerations

Effective from 1 January 2023, the FSIE regime introduced significant changes to the tax treatment of certain types of foreign-sourced income received in Hong Kong. This includes foreign-sourced interest, dividends, intellectual property (IP) income and disposal gains.

For businesses with regional operations or cross-border structures, this is particularly important as offshore income is no longer automatically treated as non-taxable simply because it originates outside Hong Kong. These changes align Hong Kong's tax policies with international standards, particularly those set by the European Union (EU), while helping prevent cross-border tax avoidance.

To qualify for exemptions, entities must satisfy the relevant exemption conditions, which may include economic substance, participation exemption or nexus requirements depending on the type of income involved.

Other important taxes

In addition to profits tax, there are several other taxes that may apply to your business in Hong Kong depending on the nature of your operations. Understanding these obligations beforehand can help you better manage your company’s compliance.

Salaries tax

In Hong Kong, personal tax on employment income is generally referred to as salaries tax. It applies to income from employment, office and pension that arises in or is derived from Hong Kong. The tax payable is determined by applying either the standard rate of 15% on net income up to HK$5 million and 16% on the portion exceeding HK$5 million, or the progressive rates on net chargeable income, whichever results in a lower tax liability.

For the latter, there are five marginal tax brackets:

Net chargeable income	Rate
HK$0 – HK$50,000	2%
HK$50,001 – HK$100,000	6%
HK$100,001 – HK$150,000	10%
HK$150,001 – HK$200,000	14%
Above HK$200,000	17%

Where an employee is likely to be chargeable to salaries tax, employers are generally required to submit the relevant notification form to the IRD within three months of the employee commencing employment. Employers will also need to file the annual employer’s return to report all remunerations paid to employees for the applicable YA. This applies to employees who are:

Full-time or part-time staff, regardless of income amount
A director, regardless of income amount

Withholding tax

Only specific types of payments are subject to withholding tax in Hong Kong, such as royalties. Hong Kong generally does not impose withholding tax on dividends and interest.

When a Hong Kong-resident company or individual makes royalty payments to a non-resident for the use of, or the right to use, intellectual property in Hong Kong, a portion of the payment may be deemed taxable and subject to withholding obligations.

Double Taxation Agreements

Double taxation can occur when the same income is taxed in two jurisdictions: the source jurisdiction where the income arises and the jurisdiction of residence where the income is received.

What is a Double Taxation Agreement?

A double taxation agreement (DTA) is a bilateral agreement between two countries that seeks to eliminate the double taxation of income. Each DTA concluded by Hong Kong is separately negotiated and has specific terms that may differ from one country to another.

However, there are certain general aspects that a typical DTA will address. This includes dividends, interest, royalties, business profits, directors’ fees and airline or shipping profits.

As of 2026, Hong Kong maintains an extensive tax treaty network covering more than 50 jurisdictions, including the Mainland of China, Singapore, the United Kingdom, Ireland, Luxembourg, the Netherlands and the United Arab Emirates (UAE). If you’re planning to establish your presence in these markets, our local offices can support you through the setup and expansion process.

Claiming relief under a DTA

DTAs generally apply to Hong Kong tax residents. For treaty purposes, a company is generally regarded as a Hong Kong resident if it is incorporated in Hong Kong or, if incorporated outside Hong Kong, normally managed or controlled in Hong Kong. This is subject to the specific definition set out in the relevant DTA.

To claim benefits as a Hong Kong tax resident under applicable DTAs, you will need to present a Certificate of Resident Status from the IRD to the treaty country. The IRD may require supporting information demonstrating that the business has sufficient presence and operational substance in Hong Kong.

Accounting standards in Hong Kong

Once incorporated in Hong Kong, your business will need to maintain transparent and reliable financial reporting in line with local regulatory requirements. The Hong Kong Institute of Certified Public Accountants (HKICPA) oversees the accounting and financial reporting standards applicable in this jurisdiction.

Hong Kong applies the Hong Kong Financial Reporting Standards (HKFRS), which are closely aligned with the International Financial Reporting Standards (IFRS). These standards govern the preparation of general-purpose financial statements and other forms of financial reporting.

The HKFRS framework consists of a range of accounting and financial reporting standards, together with related interpretations. Each standard covers a specific area of financial reporting, including topics such as the presentation of financial statements, inventories, statement of cash flows and income taxes. If your business operates as a commercial, industrial, financial or other profit-seeking entity, you will generally be required to prepare your financial statements in accordance with HKFRS.

For small entities

Depending on your entity type, you may be eligible for reporting exemptions under the Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard (SME-FRF and FRS).

For private entities

Eligible private entities without public accountability may apply the HKFRS for Private Entities. This framework simplifies certain accounting treatments permitted under the HKFRS. It also removes topics and disclosure requirements that are generally not relevant to private entities, simplifying your compliance.

How we can help

As a global financial hub, Hong Kong continues to stand out for its relatively straightforward tax environment. Businesses generally benefit from comparatively low profits tax rates, no value added tax (VAT) or goods and services tax (GST) and no withholding tax on dividends. Budget 2026-27 also introduced various tax and financial relief measures for companies, subject to applicable conditions.

If you’re setting up or growing your presence in Hong Kong, our local team can support you with tax, accounting and other compliance matters. With experience supporting international businesses across multiple jurisdictions, we understand both the local requirements in Hong Kong and the practical challenges companies often face when operating across borders.

Get in touch with us for more information.

No. Hong Kong does not impose sales tax, value-added tax (VAT) or goods and services tax (GST). This is one feature of Hong Kong’s tax system that many international businesses find commercially attractive, especially businesses involved in trading, professional services or regional headquarters operations.

Businesses and individuals with income tied to Hong Kong will generally have Hong Kong tax obligations. The main tax most businesses encounter is the profits tax, which applies to profits arising in or derived from business activities carried on in Hong Kong. Individuals earning employment income connected to Hong Kong may also be subject to salaries tax.

Profits tax is typically the main corporate tax businesses encounter when operating in Hong Kong. It is charged on profits arising in or derived from Hong Kong from activities carried out in the jurisdiction. Hong Kong uses a territorial taxation system, meaning profits generated outside Hong Kong may not be taxable, provided the relevant requirements are satisfied and sufficient supporting evidence is available.

Under the current two-tier regime, corporations are generally taxed at 8.25% on the first HK$2 million of assessable profits and 16.5% on profits above that amount, subject to the applicable conditions.

In Hong Kong, profits tax is assessed according to a Year of Assessment (YA), which usually runs from 1 April to 31 March of the following year. The IRD generally issues profits tax returns on the first working day of April annually. The filing timeline for each company will depend on factors such as its financial year-end and whether any extension arrangements are available.

Once the notice of assessment is issued, payment of the profits tax due must be made according to the deadlines specified by the IRD. Our team can also guide clients through the IRD’s block extension scheme, which may provide additional time for filing.

Broadly speaking, foreign-sourced income is not automatically taxed in Hong Kong. However, in recent years, the Foreign-Sourced Income Exemption (FSIE) regime has introduced additional rules affecting how certain categories of offshore income received in Hong Kong are treated, particularly for multinational enterprise entities. This includes foreign-sourced dividends, interest, intellectual property income and certain disposal gains.

Depending on the structure and circumstances involved, companies may need to satisfy economic substance, participation exemption or nexus requirements for the income to remain exempt from Hong Kong profits tax. Businesses with regional operations or cross-border structures will therefore need to review these rules carefully as part of their wider tax planning and compliance process.

Yes, our team of experts can support you with both the setup process and the ongoing operational and compliance matters that come with running a business in this jurisdiction. Download our international expansion guide to find out how we can assist.

Salaries tax is imposed on employment income earned in Hong Kong. This generally includes remuneration such as salaries, wages, bonuses, commissions, allowances and directors’ fees. Although the employee is responsible for paying the tax, employers still have important reporting obligations.

Businesses are generally required to submit employer’s returns to the IRD and report details relating to employee compensation. Additional filings may also be required when employees commence employment, cease employment or leave Hong Kong for an extended period.

Hong Kong is often described as a low-tax jurisdiction because of its relatively competitive tax rates and territorial basis of taxation. However, it is generally not regarded as a tax haven. Hong Kong maintains an established legal system, regulatory framework and international financial infrastructure, while also participating in international tax cooperation and transparency initiatives.

Hong Kong has also introduced additional measures aligned with the Organisation for Economic Co-operation and Development (OECD) and European Union (EU) standards, including transfer pricing rules and the Foreign-Sourced Income Exemption (FSIE) regime. If you’re considering Hong Kong as part of your international expansion strategy, our team can help you assess whether the jurisdiction aligns with your commercial and operational objectives.

Dividend income is generally not subject to tax in Hong Kong. That said, the overall tax position will still depend on your company’s structure, activities and whether any foreign-sourced income rules apply, particularly under the FSIE regime for certain multinational enterprise entities.

Most companies in Hong Kong prepare their financial statements in accordance with the Hong Kong Financial Reporting Standards (HKFRS) issued by the Hong Kong Institute of Certified Public Accountants. This is subject to any applicable reporting exemptions or alternative frameworks. These standards are closely aligned with the International Financial Reporting Standards (IFRS), meaning many international businesses will already find the framework relatively familiar.

Yes. Certain smaller private companies in Hong Kong may qualify for simplified reporting requirements under the Small and Medium-sized Entity Financial Reporting Framework (SME-FRF) and Financial Reporting Standard (SME-FRS). Eligibility will generally depend on factors such as the company’s size and whether it satisfies the relevant criteria under the Companies Ordinance.

Hong Kong profits tax is typically calculated based on the company’s assessable profits for the relevant YA after making the necessary tax adjustments. In most cases, businesses will begin with the accounting profit reflected in their financial statements before adjusting for items that may not be taxable or deductible under Hong Kong tax rules. If you require support with profits tax calculations and filing obligations, please get in touch with our team.