A Hong Kong private company limited by shares is generally subject to Profits Tax on profits arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong.
For corporations, the standard Profits Tax rate is 16.5%. Where the two-tiered rates apply, the first HKD 2 million of assessable profits is taxed at 8.25%, and the balance is taxed at 16.5%.
Hong Kong does not impose VAT, GST, dividend withholding tax or a separate capital gains tax. This does not mean, however, that a company has no Hong Kong tax obligations. In practice, a company may need to deal with Profits Tax, provisional Profits Tax, business registration, employer reporting, stamp duty, deductions, depreciation allowances, tax losses and, in some cases, payments to non-residents or foreign-sourced passive income.
This article summarises the main Hong Kong tax matters relevant to private companies limited by shares.
Overview of Hong Kong taxes and duties
A private company limited by shares will usually be concerned first with Profits Tax. Other taxes, duties or filing obligations may apply depending on the company’s activities.
Tax or Duty | When It Applies | Rate / Amount | Basis |
Profits Tax | Company has HK-sourced assessable profits | 8.25% / 16.5% | Assessable profits × applicable rate |
Provisional Profits Tax | Advance tax for the following year of assessment | Based on prior year | Credited against final assessment |
Business Registration | Company carries on business in Hong Kong | Fixed fee + levy | Payable on registration and renewal |
Stamp Duty (share transfers) | Shares in a HK company are transferred | 0.1% bought note + 0.1% sold note | Higher of consideration or market value; rate effective 17 Nov 2023 |
Property Tax / duties | Company owns, lets, or acquires HK property | Depends on facts | Separate property review required |
Royalties to non-residents | Certain IP payments to non-residents | Depends on deeming provisions | Payer may need to retain tax before remitting |
VAT / GST | Not applicable | None | Hong Kong does not impose VAT or GST |
Dividend Withholding Tax | Dividends paid by a HK company | None | No dividend withholding tax in ordinary cases |
Capital Gains Tax | Disposal of capital assets | None | Gains may still be taxable if trading in nature |
For a company with ordinary trading or service activities, the recurring compliance work usually includes accounting records, annual audit, Profits Tax return filing, tax computation, business registration renewal and employer filings where staff or directors’ fees are involved.
More detailed review is required where the company has offshore profits claims, related-party charges, royalties, share transfers, property transactions or specified foreign-sourced passive income.
Who is chargeable to Profits Tax
Any person — including a corporation — carrying on a trade, profession, or business in Hong Kong is chargeable to Profits Tax on profits arising in or derived from Hong Kong. There is no general distinction between residents and non-residents: a Hong Kong-incorporated company may derive offshore profits that fall outside the charge, while a non-Hong Kong company carrying on business here may be fully chargeable.
Gains from the sale of capital assets are excluded. A gain described as ‘capital’ in the accounts is not automatically non-taxable — the facts must support the capital nature of the gain. Whether the business is carried on in Hong Kong, and whether profits arise here, are questions of fact determined case by case.
Profits Tax rates and the basis of assessment
Profits Tax is assessed by reference to a year of assessment running from 1 April to 31 March. Where a company prepares annual accounts, the assessable profits are generally calculated from the accounting year ending within the year of assessment. For example, accounts for the year ended 31 December 2025 form the basis for the 2025/26 year of assessment.
The standard Profits Tax rate for corporations is 16.5%. Under the two-tiered regime, the first HKD 2 million of assessable profits of an eligible corporation is taxed at 8.25%, with the balance at 16.5%. Only one entity per connected group may benefit from the lower rate — all other connected entities remain taxable at 16.5%.
Tax calculation examples (two-tiered rates):
Assessable Profits | Tax Calculation | Profits Tax Payable |
HKD 1,000,000 | HKD 1,000,000 × 8.25% | HKD 82,500 |
HKD 2,000,000 | HKD 2,000,000 × 8.25% | HKD 165,000 |
HKD 3,000,000 | HKD 2m × 8.25% + HKD 1m × 16.5% | HKD 330,000 |
2025/26 one-off Profits Tax waiver: The 2026/27 Budget includes a 100% Profits Tax waiver for the 2025/26 year of assessment, capped at HKD 3,000 per entity. The relief applies to the final tax liability — not to provisional tax, which remains payable on the usual schedule. Approximately 171,000 businesses are expected to benefit. This is subject to legislative enactment; confirm the current status with the Inland Revenue Department (IRD) or your tax adviser before relying on the relief.
Computing assessable profits
Assessable profits are not the same as accounting profit. The financial statements are the starting point, but tax adjustments are required. A simplified computation runs:
Assessable profits = Accounting profit + Non-deductible expenses − Non-taxable income ± Tax adjustments − Allowable losses
Common adjustments include adding back accounting depreciation and capital expenditure, adding back expenses not incurred in producing chargeable profits, deducting depreciation allowances under the Inland Revenue Ordinance, excluding non-taxable or offshore income, and deducting allowable losses carried forward. The tax computation should show clearly how accounting profit is adjusted to arrive at assessable profits.
Source of profits and offshore claims
Hong Kong taxes on a territorial basis. The source of profits is therefore central to the charge — and it is not determined by incorporation, customer location, the currency of invoices, where payment is received, or where the bank account is held. The question is where the profit-producing activities actually occur.
For a trading business, the relevant facts typically include where purchase and sale contracts are negotiated and concluded, where trading decisions are made, and where procurement and sales activities are carried out. For a service business, the place where the work is performed is usually determinative — fees for work done in Hong Kong are Hong Kong-sourced even if the client is overseas.
What supports an offshore profits claim
A company claiming that profits are offshore must support that position with records. A statement that customers or suppliers are outside Hong Kong is not sufficient. Relevant materials include:
- Contracts, purchase orders, and correspondence with customers and suppliers
- Records of negotiations, board minutes, and management approvals
- Staff duty records, travel records, and shipping or fulfilment documents
- Bank records, invoices, and accounting entries
The company must be able to demonstrate what activities produced the profits and where those activities were carried out. The IRD scrutinises offshore claims and the burden of proof rests with the taxpayer.
Example — overseas customers, activities in Hong Kong
A Hong Kong company sells goods to overseas customers: HKD 10 million in sales, HKD 7 million cost of goods, HKD 1 million operating expenses, and HKD 2 million accounting profit. If the Hong Kong team negotiates terms, manages customers, sets pricing, coordinates procurement, and concludes contracts from Hong Kong, those profits are likely Hong Kong-sourced. Direct shipment from an overseas supplier to an overseas buyer is not conclusive. On HKD 2 million fully assessable under two-tiered rates: HKD 2,000,000 × 8.25% = HKD 165,000. The result differs if the profit-producing activities occur outside Hong Kong and the company can support that position.
Deductions: what is allowable and what is not
Expenses are deductible to the extent they are incurred in producing chargeable profits and are not specifically disallowed. An expense’s appearance in the accounts does not make it deductible — the connection to chargeable profits is the test.
Common deductible expenses
- Salaries, wages, and employer MPF contributions (subject to applicable limits)
- Rent for business premises used to produce chargeable profits
- Business travel and marketing costs
- Professional fees, bank charges, and software subscriptions
- Repairs and maintenance
- Bad and doubtful debts, subject to the relevant rules
Non-deductible items
- Domestic or private expenses
- Capital expenditure and the cost of improvements
- Accounting depreciation (replaced by statutory depreciation allowances)
- Sums recoverable under insurance or indemnity
- Rent or costs relating to premises not used to produce chargeable profits
- Taxes payable under the Inland Revenue Ordinance, except Salaries Tax on employees
Interest expense
A deduction for interest is not automatic. The company must show the loan agreement, the parties, the amount and rate, the purpose of the borrowing, how the funds were applied, and that the borrowed money produced chargeable profits. Related-party loans require additional support for the commercial basis of the arrangement and the arm’s-length rate.
Depreciation allowances under the Inland Revenue Ordinance
Accounting depreciation is not deductible for Profits Tax. In its place, the Inland Revenue Ordinance provides statutory depreciation allowances. For plant and machinery, these comprise:
- Initial allowance at 60% of cost in the year of acquisition
- Annual allowances at 10%, 20%, or 30% on reducing value, depending on asset category
Assets qualifying for the same annual rate are grouped in the same pool. Capital expenditure on computer hardware and software may qualify for full deduction in the basis period in which it is incurred, subject to the applicable rules.
Industrial buildings may qualify for initial and annual allowances where the relevant conditions are met. Commercial buildings may qualify for annual commercial building allowance where used for a trade, profession, or business. A fixed asset register should be maintained, recording date of purchase, cost, description, location, use, disposal date, and disposal proceeds.
Tax losses
Losses from an accounting year may generally be carried forward and offset against future profits of the same trade, profession, or business. A corporation carrying on more than one trade may, subject to the rules, offset losses from one trade against profits from another. Losses are not transferable between separate companies solely by reason of common group ownership.
Where a company has been acquired, historic losses require careful review: how the losses arose, whether the business has continued in the same form, whether the IRD has accepted the losses in prior assessments, and whether anti-avoidance provisions apply.
Provisional Profits Tax
A Profits Tax demand typically includes both final tax for the completed year of assessment and provisional tax for the following year. The provisional amount is generally based on the preceding year’s assessable profits. When the final assessment for the provisional year is issued, the provisional tax already paid is credited against the final liability.
If a company expects its profits to fall substantially, it may apply to hold over the provisional tax. The application must be submitted within the prescribed time limit and supported by reasons. The IRD does not grant holdover automatically; supporting calculations should be prepared in advance.
Stamp duty on share transfers
Transfers of shares in a Hong Kong company attract Stamp Duty. With effect from 17 November 2023, stamp duty on the sale or purchase of Hong Kong stock is charged at 0.1% on each of the bought note and the sold note — a combined rate of 0.2% on the higher of consideration or market value. For unlisted shares in private companies, value is assessed based on the company’s latest accounts; the IRD may request updated management accounts if audited accounts are not current.
Stamp duty is separate from Profits Tax. It applies even where the company itself has not sold assets or earned taxable profits. Shareholders should confirm the stamp duty position before executing documents for share transfers, group reorganisations, exits, or employee share arrangements.
Payments to non-residents
Certain sums paid or credited to non-residents for the use — or the right to use — intellectual property may be deemed taxable in Hong Kong. Where a Hong Kong payer makes such payments to a non-resident, the payer may be required to retain an amount sufficient to cover the tax before remitting. The company should review the nature of the payment, the tax residence of the recipient, whether the IP is used in Hong Kong, whether the payment is deductible here, and which, if any, deeming provisions apply. This review should be completed before payment is made.
Related-party transactions and transfer pricing
Transactions with related parties — management fees, head office charges, cost recharges, royalties, intercompany loans, or shared staff costs — require documented support. The company must be able to show what services or benefits were received, how the charge was calculated, why the expense was incurred in producing chargeable profits, and that the amount is commercially supportable. A general allocation from a parent company is routinely challenged where the Hong Kong entity cannot demonstrate the basis of the charge and the benefit received.
Foreign-sourced passive income: the FSIE regime
With effect from 1 January 2023, Hong Kong implemented a Foreign-Sourced Income Exemption (FSIE) regime targeting multinational enterprise (MNE) entities. Under the regime, certain foreign-sourced income received in Hong Kong — interest, dividends, equity disposal gains, and IP income — is deemed to be Hong Kong-sourced and chargeable to Profits Tax unless the entity meets a relevant exception. From 1 January 2024, the scope expanded to include disposal gains on other types of assets beyond equity interests.
The applicable exception depends on the income type: economic substance requirements apply to interest and certain disposal gains; participation conditions may apply to dividends and equity disposal gains; nexus rules govern IP income. A company receiving foreign-sourced passive income should review its position before filing.
Profits Tax returns and filing obligations
The IRD generally issues Profits Tax returns on the first working day of April each year. The standard filing deadline is one month from the date of issue. For companies represented by a tax representative, the IRD’s block extension scheme may provide an extended deadline based on the company’s accounting year-end — but companies should confirm the applicable deadline annually rather than assume an extension applies automatically.
For newly incorporated companies, the first Profits Tax return is generally issued around 18 months after the date of incorporation. The filing package normally includes the Profits Tax return, audited financial statements, tax computation, any supplementary forms, and supporting schedules. Hong Kong’s tax administration is progressively moving to electronic filing; structured electronic submission is becoming standard.
Books, records, and the 7-year retention requirement
A company must keep sufficient records in English or Chinese to enable its assessable profits to be readily ascertained. Records must generally be retained for at least 7 years after completion of the relevant transactions, unless the IRD permits earlier disposal.
In practice, records should cover accounting ledgers, bank statements, invoices and receipts, contracts, payroll records, employer returns, fixed asset registers, loan agreements, board minutes, tax computations, and supporting documents for offshore claims, deductions, and allowances. Records should be maintained throughout the year — reconstructing them in response to an IRD enquiry is significantly more difficult and often less persuasive.
Frequently asked questions
What is the Profits Tax rate for a Hong Kong company?
The standard corporation rate is 16.5%. Under the two-tiered regime, the first HKD 2 million of assessable profits is taxed at 8.25%, with the balance at 16.5%. Only one entity per connected group may claim the lower rate.
Does Hong Kong tax offshore profits?
Hong Kong taxes profits arising in or derived from Hong Kong. Profits from activities carried out entirely outside Hong Kong may fall outside the charge if the source analysis — supported by contemporaneous records — supports that position. Certain foreign-sourced passive income is subject to the FSIE regime and requires separate review.
Does Hong Kong have VAT, GST, or dividend withholding tax?
No. Hong Kong does not impose VAT, GST, or withholding tax on dividends paid by a Hong Kong company in ordinary cases.
Can all business expenses be deducted?
No. An expense is deductible only to the extent it is incurred in producing chargeable profits and is not specifically prohibited. Capital expenditure, accounting depreciation, domestic expenses, and taxes under the Inland Revenue Ordinance (with limited exceptions) are not deductible.
What is the stamp duty rate on a share transfer?
Since 17 November 2023, the rate is 0.1% on the bought note and 0.1% on the sold note — 0.2% combined — calculated on the higher of consideration or market value.
Is there a tax waiver for 2025/26?
The 2026/27 Budget proposes a one-off 100% Profits Tax waiver for the 2025/26 year of assessment, capped at HKD 3,000 per entity. The relief is subject to legislative enactment and does not affect provisional tax obligations.
Questions about your company’s Profits Tax position?
Contact our tax team at cw@cwhkcpa.com. Our offices in Hong Kong, Shenzhen, Guangzhou, and Shanghai advise on Hong Kong and cross-border tax matters across the Greater China region.
Disclaimer
This article is for general information purposes only and does not constitute legal, tax, or professional advice. The information reflects the position as of 24 June 2026. Laws and regulations are subject to change. Readers should seek professional advice specific to their circumstances.