Tax Losses Carried Forward in Hong Kong: How Profits Tax Losses Work

By Di Ma, Project Manager 29 OCT 2026 · 4 MIN READ

Most companies make a loss at some point: the first year, a bad year, a year of heavy investment. In Hong Kong, a loss for profits tax isn't wasted. It's carried forward and set off against later profits, so the company pays tax only once it has earned back what it lost. Here's how it works for a company.

The rule

Under section 19C(4) of the Inland Revenue Ordinance, when a corporation makes a loss in its trade or business in a year of assessment:

the loss is first set off against its other assessable profits for the same year, such as its share of a partnership's profits; and
whatever is left is carried forward and set off against its assessable profits in later years.

The section sets no time limit. A loss can be carried forward until it's used up.

A worked example

A loss carried forward over three years (illustrative, HK$)
Year	Profit or loss	Loss used	Assessable profit	Loss left
Year 1	(300,000)	—	Nil	300,000
Year 2	200,000	200,000	Nil	100,000
Year 3	500,000	100,000	400,000	Nil

The company pays no profits tax in years 1 and 2. In year 3, only HK$400,000 of its HK$500,000 profit is assessable, and the two-tiered rates apply to that figure.

A tax loss isn't the accounting loss

The loss that carries forward is the loss for tax purposes, worked out in the tax computation, not the loss in the income statement. They differ because the computation:

adds back what isn't deductible, such as depreciation, private spending and capital items (see tax-deductible expenses);
deducts depreciation allowances on plant and equipment instead (see fixed assets); and
leaves out profits or losses that aren't from Hong Kong (see offshore profits).

A company can show a loss in its accounts and a taxable profit, or the other way round. The figure that matters is the one in the tax computation filed with the profits tax return.

What a loss can't do

Go backwards. Section 19C carries losses forward only. A loss this year doesn't produce a refund of tax paid in an earlier year.
Move to another company. The loss is set off against the same company's own profits. A loss in one group company doesn't reduce a profit in another.
Be bought. Under section 61B, if a change in a company's shareholding was made with the sole or dominant purpose of using its losses to avoid or reduce tax, the IRD can disallow the set-off.

Even in a loss year, file the return on time, with the tax computation showing the loss. The loss carried forward only has value if it's established, and supported by records kept for at least 7 years (section 51C). Losses from many years ago still need their records when they're finally used.

Provisional tax after a loss

Losses brought forward also reduce the assessable profit used for provisional tax. If a company expects a loss, or expects losses brought forward to cover its profit, it may be able to apply to hold over provisional tax.

Keeping the loss record straight

A loss schedule in each year's tax computation: the loss brought forward, any loss for the year, any loss used, and the loss carried forward.
Agreed with the IRD's assessment each year: check that the loss figure in the assessment matches your computation.
Handed over if you change accountant or bookkeeper (see switching bookkeepers): the loss history is easy to lose and tedious to rebuild.

The Certanta client portal, income statement of the fictional demo company Harbourfront Trading Ltd for 1 January to 30 September 2026, with expense lines including bank charges, depreciation, freight and delivery, office and IT, professional and audit fees, rent and rates, staff salaries and MPF, and travel and entertainment. — The demo company's income statement: the starting point the tax computation adjusts to find the taxable profit or loss.

How Certanta helps

Books reconciled every month, so the year's result, and any loss, is known early.
The tax computation prepared from your books on monthly plans, including the loss brought forward and carried forward.
The history kept: every year's figures and documents in one place, for as long as the loss is being used.

Frequently asked questions

Can a Hong Kong company carry forward tax losses?

Yes. Under section 19C(4) of the Inland Revenue Ordinance, a corporation's loss is set off against its other assessable profits for the same year and the balance is carried forward and set off against its assessable profits in later years.

Is there a time limit on carrying forward losses in Hong Kong?

Section 19C sets no time limit; a loss can be carried forward until it is fully used, as long as the records supporting it are kept.

Can losses be carried back in Hong Kong?

No. Section 19C carries losses forward only; a loss does not produce a refund of tax paid for an earlier year.

Can a loss in one group company be used against another's profit?

Section 19C sets a corporation's loss off against its own assessable profits; it does not provide for the loss to be used against another company's profits, even in the same group.

Is the tax loss the same as the loss in the accounts?

No. The tax loss is worked out in the tax computation, which adds back non-deductible items such as depreciation, deducts tax depreciation allowances, and excludes profits or losses that are not from Hong Kong.

Can I buy a company to use its tax losses?

Under section 61B, if a change in shareholding had the sole or dominant purpose of using a company's losses to avoid or reduce tax, the IRD can disallow the set-off of those losses.

Losses you can prove

A tax loss is only worth something if the books behind it hold up. Certanta keeps them reconciled every month, with a source document behind every line.

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This article summarises sections 19C and 61B of the Inland Revenue Ordinance (Cap. 112) as published on e-Legislation on 29 October 2026. It is general information, not tax advice. Special rules apply to some businesses and concessionary regimes, and to individuals and partnerships; ask your adviser about your company's losses.