Hong Kong Profits Tax Rates: The Two-Tiered System Explained, With Examples
Hong Kong's headline profits tax rate for companies is 16.5%. Most small companies pay much less than that on their first slice of profit, because since the year of assessment 2018/19 Hong Kong has had two-tiered profits tax rates. Here is how they work, who can use them, and the one rule that catches companies that belong to a group.
The rates
| Business | First HK$2 million of assessable profits | Above HK$2 million |
|---|---|---|
| Corporations | 8.25% | 16.5% |
| Unincorporated businessessole proprietorships, partnerships | 7.5% | 15% |
The lower rate applies to the first HK$2 million of assessable profits — the taxable profit after the tax adjustments, not the profit in your accounts. Everything above HK$2 million is taxed at the standard rate. Source: IRD, two-tiered profits tax rates FAQ.
Worked examples
| Assessable profits | Tax | At a flat 16.5% |
|---|---|---|
| HK$500,000 | HK$41,250500,000 × 8.25% | HK$82,500 |
| HK$1,500,000 | HK$123,7501,500,000 × 8.25% | HK$247,500 |
| HK$3,000,000 | HK$330,0002,000,000 × 8.25% + 1,000,000 × 16.5% | HK$495,000 |
The most a corporation can save under the two-tiered rates is HK$165,000 a year: HK$2 million × (16.5% − 8.25%). A company with profits of HK$2 million or less pays exactly half the standard rate.
The connected-entity rule
This is where groups get caught out. If, at the end of its basis period, a company has one or more connected entities, only one of them — the one nominated — can be taxed at the two-tiered rates for that year. The others pay the standard rates on all their profits.
Broadly, two entities are connected if one controls the other, or both are controlled by the same person or entity. Control generally means owning or controlling, directly or indirectly, more than 50% of the issued share capital, the voting rights, or the right to capital or profits. That includes two companies owned by the same individual.
The election is made in the nominated entity's profits tax return and, once made, cannot be changed for that year. An entity's election only works if no other connected entity has elected for the same year. A company with no connected entities declares that in its return.
Who cannot use the two-tiered rates
- A company with connected entities that is not the nominated one.
- Corporations that have elected certain special concessionary regimes — for qualifying insurance or insurance-brokerage business, corporate treasury centres, aircraft lessors and leasing managers, and ship lessors and leasing managers.
The one-off reduction for 2025/26
On top of the rates, the government has again given a one-off reduction. For the year of assessment 2025/26, profits tax is reduced by 100%, up to HK$3,000 per business. The legislation was gazetted on 22 May 2026; the reduction is applied in the final assessment, so no application is needed, and it does not apply to provisional tax. (For 2024/25 the ceiling was HK$1,500.) Source: IRD, 2026-27 Budget tax measures.
Two things the rates don't change
- What is taxable. Hong Kong taxes profits arising in or derived from Hong Kong. Whether a particular profit is taxable here is a separate — and fact-heavy — question from the rate it is taxed at.
- Provisional tax. Alongside the final tax for a year, the IRD normally charges provisional tax for the next year, based on the current year's profits. The one-off reduction applies only to the final tax, not to provisional tax.
How Certanta helps
- Books kept current all year, so assessable profits are known before the year ends — not discovered when the return is due.
- The profits tax return prepared from those books, with the tax computation that turns accounting profit into assessable profit. Included on monthly bookkeeping plans and on annual packages from 121 transactions a year; you sign and file. (See pricing.)
- Deadlines tracked in your client portal, under the IRD's dates for your accounting year end — see profits tax return deadlines.
Frequently asked questions
What is the profits tax rate in Hong Kong?
Under the two-tiered rates, corporations pay 8.25% on the first HK$2 million of assessable profits and 16.5% on the rest. Unincorporated businesses pay 7.5% and 15%. The rates have applied since the year of assessment 2018/19.
Does every company get the 8.25% rate?
No. A company with connected entities can use the two-tiered rates only if it is the one entity nominated among them for that year. Corporations that have elected certain concessionary regimes, such as corporate treasury centres or qualifying insurance business, are also excluded.
What is a connected entity?
Broadly, an entity that controls, or is controlled by, the other, or both are controlled by the same person or entity. Control generally means owning or controlling, directly or indirectly, more than 50% of the issued share capital, voting rights, or rights to capital or profits.
How do I elect for the two-tiered rates?
In the profits tax return of the nominated entity. The election is irrevocable for that year of assessment, and it is only effective if no other connected entity has elected for the same year.
Is there a tax reduction for 2025/26?
Yes. Profits tax for the year of assessment 2025/26 is reduced by 100%, subject to a ceiling of HK$3,000 per business. It is applied in the final assessment and does not apply to provisional tax.
How much can a company save under the two-tiered rates?
Up to HK$165,000 a year for a corporation: the first HK$2 million is taxed at 8.25% instead of 16.5%.
The return prepared from books you can trust
Certanta keeps your books current all year and prepares the profits tax return from them — included on monthly plans. You sign and file.
Open the demo See pricingThis article summarises the Inland Revenue Department's published rules as at 26 October 2026 — the two-tiered rates FAQ and the 2026-27 Budget tax measures. It is general information, not tax advice; how the rules apply to your company depends on its facts, including whether it has connected entities.