Provisional Profits Tax in Hong Kong: How It Works, and How to Hold It Over
A company's first profits tax bill often comes as a shock. It isn't only the tax on the year just finished. It also includes provisional tax for the year you're in now, worked out on the assumption that this year's profit will be the same as last year's. For a company in its first profitable year, the bill can be close to double what it expected.
What provisional tax is
Every person chargeable to profits tax is liable to pay provisional profits tax (section 63G of the Inland Revenue Ordinance). It's charged on the assessable profits of the preceding year, after any losses brought forward (section 63H), at the rates for that year (see profits tax rates). When this year's final assessment comes, the provisional tax you paid is credited against it: if you paid too much, the excess is set off or refunded; if too little, you pay the difference.
It arrives on the same notice of assessment as the final tax for the previous year, and is usually paid in two instalments: about 75% with the final tax, and the remaining 25% about three months later. The dates are on your notice.
A worked example
| Item | Amount | How it's worked out |
|---|---|---|
| Final tax 2025/26 | HK$79,500 | 1,000,000 × 8.25% = 82,500, less the 2025/26 one-off reduction of HK$3,000 |
| Provisional tax 2026/27 | HK$82,500 | the same HK$1,000,000 at 8.25%; the one-off reduction doesn't apply to provisional tax |
| First payment | HK$141,375 | the final tax HK$79,500 + 75% of the provisional tax (HK$61,875) |
| Second payment, about three months later | HK$20,625 | the remaining 25% of the provisional tax |
The first payment is nearly double the tax on the year's profit. If 2026/27 profits are similar, the provisional tax will roughly cover it, and from then on each year's bill is about one year's tax again. The surprise is a one-off, in the first profitable year, but it needs cash. Put both payments in your 13-week cash flow forecast as soon as the profit is known, not when the notice arrives.
Holding it over when profits fall
If this year is going worse than last, you can apply to the Commissioner to hold over (defer, in effect reduce) all or part of the provisional tax (section 63J). The grounds include:
- The 90% test: this year's assessable profits are, or are likely to be, less than 90% of last year's (or of the IRD's estimate);
- a loss brought forward was left out or is wrong;
- the business has stopped, or will stop, before the end of the year, with lower profits for the year;
- you've objected to last year's assessment.
The deadline
The application must be in writing and reach the IRD by 28 days before the payment's due date, or 14 days after the date of the notice, whichever is later (section 63J(1)). The notice of assessment states the date. It's usually still possible to apply for the second instalment if your figures change after the first has been paid.
What to send
- A written application stating the ground;
- an estimate of this year's assessable profits, with a computation showing the fall below 90%;
- management accounts for the year so far, which are usually asked for to support the estimate.
The Commissioner decides and tells you in writing. If the application is refused, or isn't made in time, the tax is due on the dates on the notice.
If you pay late
Tax not paid by its due date is in default. The Commissioner may add a surcharge of up to 5%, and a further surcharge of up to 10% on any amount still unpaid six months later (section 71). If you expect a cash problem, talk to your adviser before the due date, not after.
How Certanta helps
- Books current all year, so you know early whether this year's profit is falling below 90% of last year's, in time to apply.
- Management accounts on demand, the monthly management pack, to support a holdover application.
- A 13-week cash forecast to plan the payments, and your deadlines in the portal.
- The profits tax return prepared from the books, included on monthly plans (see pricing).
Frequently asked questions
What is provisional profits tax in Hong Kong?
An advance payment of profits tax for the current year of assessment, charged on the previous year's assessable profits (Inland Revenue Ordinance, sections 63G and 63H). It is credited against the final tax for the year when that is assessed.
Why is my first profits tax bill so high?
Because it usually includes both the final tax for the year just finished and provisional tax for the current year, worked out on the same profits. In the first profitable year that can nearly double the payment.
When is provisional tax paid?
Usually in two instalments shown on the notice of assessment: about 75% together with the final tax, and the remaining 25% about three months later. The exact dates are on your notice.
Can I reduce my provisional tax?
You can apply to hold over all or part of it under section 63J, for example if this year's assessable profits are, or are likely to be, less than 90% of last year's, if a loss brought forward was omitted, if the business is ceasing, or if you have objected to last year's assessment.
What is the deadline for a holdover application?
It must be lodged in writing not later than 28 days before the due date for payment, or 14 days after the date of the notice, whichever is later (section 63J(1)).
What happens if I pay profits tax late?
The Commissioner may add a surcharge of up to 5% of the amount in default, and a further surcharge of up to 10% on any amount still unpaid six months later (section 71).
Know this year's profit before the IRD asks
With books kept current, you know whether this year's profit is falling in time to apply for a holdover, and the tax payments are already in your cash forecast.
Open the demo See pricingThis article summarises the Inland Revenue Ordinance (Cap. 112) as published on e-Legislation on 28 October 2026. It is general information, not tax advice. Payment dates and holdover deadlines are those on your own notice of assessment; whether to apply, and on what figures, is a question for your tax adviser.