Hong Kong profits tax guide 2026: rates and filing

Any company carrying on business in Hong Kong and earning local profits must pay profits tax. Limited companies are subject to two-tiered rates (8.25% / 16.5%), and unlimited companies to 7.5% / 15%.

Key takeaways

Hong Kong profits tax applies only to profits arising in Hong Kong; overseas profits can be exempted on application
Two-tiered rates for limited companies: 8.25% on the first HK$2 million, then 16.5%; 7.5% / 15% for unlimited companies
For 2025/26, the Category D deadline is 15 August 2026 and the Category M deadline is 16 November 2026
Late filing carries a maximum fine of HK$10,000 plus three times the tax, and serious cases can be punished with imprisonment for 3 years
Tax saving must be carried out through a professional accountant; an incorrect return carries a fine even if it was not intentional

What is profits tax?

Profits tax is a tax levied by the Hong Kong Government on persons who carry on any trade, profession or business in Hong Kong and earn profits.

Hong Kong applies the “territorial source principle” and taxes only profits arising in or derived from Hong Kong. If business profits arise purely outside Hong Kong, the taxpayer may apply for an offshore income exemption and need not pay profits tax in Hong Kong.

When profits tax is payable:

Carrying on any trade, profession or business in Hong Kong
Earning profits from that business
The profits arise in or are derived from Hong Kong

It applies to limited companies, unlimited companies (sole proprietorships and partnerships), trustees and bodies of persons, whether or not they are resident in Hong Kong.

Further reading: Quick guide to tax filing for unlimited companies: profits tax calculation, deductions checklist and key filing points

Which businesses are exempt from filing?

In the following cases the IRD will not proactively require a tax return, but once one is issued, you must still complete and submit it as required:

A business that has not yet commenced
A business that has ceased and has not resumed trading
A business that has not earned assessable profits

💡 SetupHK tip: being exempt from filing does not mean you never need to file. When reviewing potential tax liabilities, the IRD may still issue a tax return to the above businesses, and it must then be submitted on time or fines may apply.

Hong Kong profits tax rates (two-tiered)

Hong Kong uses two-tiered profits tax rates, to ease the tax burden on small and medium-sized enterprises.

Limited company

Profit tier	Tax rate
First HK$2 million	8.25%
The part exceeding HK$2 million	16.5%

Unlimited company (sole proprietorship / partnership)

Profit tier	Tax rate
First HK$2 million	7.5%
The part exceeding HK$2 million	15%

Note: where a group has several subsidiaries, one group can claim the two-tiered rates for at most one subsidiary. The other subsidiaries are taxed at the standard rate (15% or 16.5%).

Worked examples (limited company)

Example 1: profit of HK$1,000,000 Less than HK$2 million, so the whole amount is taxed at 8.25%:

HK$1,000,000 × 8.25% = HK$82,500

Example 2: profit of HK$3,000,000 The first HK$2 million is taxed at 8.25% and the balance at 16.5%:

(HK$2,000,000 × 8.25%) + (HK$1,000,000 × 16.5%) = HK$165,000 + HK$165,000 = HK$330,000

How companies file tax returns

Unlimited companies and limited companies file in different ways:

	Limited company	Unlimited company (sole proprietorship)	Unlimited company (partnership)
Filing form	BIR51	BIR60 (individual tax return)	BIR52
Filing method	Filed separately	Declared in the proprietor’s individual tax return	Filed separately, and each partner must also declare their share of profits in BIR60

2025/26 tax return extension arrangements

Profits tax returns are issued progressively every year from the first working day of April onwards, and once received they must be returned within 1 month to the IRD.

2025/26 block extension deadlines

Code	Accounting year-end date range	Deadline	eTAX filing deadline
Category N	1 April – 30 November	No extension (around early May)	1 month longer than the normal deadline
Category D	1 December – 31 December	15 August 2026	15 September 2026
Category M	1 January – 31 March	16 November 2026	16 December 2026
Category M (loss for the current year)	1 January – 31 March	2 February 2027	2 March 2027

Source: IRD circular to tax representatives –Arrangements for block extension of the time for filing 2025/26 tax returns

💡 SetupHK tip: an extension is not automatic; a block extension application must be submitted through a tax representative. Filing electronically (eTAX) automatically gives an extra 1-month extension and is the easiest way.

Deductible items: everyday company expenses

Any expenses necessarily incurred in producing assessable profits can be claimed as deductions:

✅ Deductible items

Rent, rates and management fees for offices, warehouses or shops
Staff salaries, allowances and bonuses
Employer MPF contributions (mandatory and voluntary)
Cost of purchases and raw materials
Water, electricity, gas, telephone and internet charges (must be shown to be for business use)
Business-related insurance premiums (employees’ compensation insurance, group medical insurance for staff, etc.)
Accountant’s fees and other professional service fees
Doubtful debts and bad debts
Entertainment expenses

❌ Non-deductible items

Domestic or private expenses
Capital expenditure (such as renovation)
Salaries and interest on capital of a sole proprietor or the partners themselves
Taxes paid under the Inland Revenue Ordinance (except salaries tax)
Contributions to retirement schemes that are not recognised occupational retirement schemes

Special deductible items

Item	Method of deduction
Building refurbishment expenditure	Deducted in equal instalments over 5 years starting from the year of actual payment
Computer hardware and software	Deducted in full in the basis period in which the expense is incurred
Environmental protection facilities (electric vehicles, food waste machines, etc.)	Deducted in full in the basis period in which the expense is incurred
Cost of reinstating leased premises	Expenses for restoring a leased property to its pre-lease condition are deductible (effective from 2024/25)
Industrial / commercial building allowances	The time limit for claims has been abolished; on a change of ownership, the new owner can still claim allowances for the property
Charitable donations	Not less than HK$100, capped at 35% of assessable profits

Consequences of late filing of tax returns

Filing on time is a taxpayer’s legal responsibility. The consequences of late filing are as follows:

According to the Inland Revenue Ordinance, late filing of a profits tax return may be punished with a fine HK$10,000 and the taxpayer may be required to pay three times the amount of tax, and may also be prosecuted. In serious cases (such as failing to keep adequate income and expenditure records, or filing an incorrect return), the maximum penalty is a fine of HK$50,000 plus three times the tax and imprisonment for 3 years.

Legal tax-saving strategies

Profits tax is calculated on “assessable profits”, and the core of legal tax saving lies in correctly declaring all deductible expenses, rather than deciding for yourself which items can be deducted.

Common tax-saving approaches:

Declare business expenses in full: make sure all qualifying expenses are supported by receipts and correctly declared
Make good use of depreciation allowances: machinery, equipment, computers and other assets can be deducted at depreciation rates
Apply for an offshore income exemption: if business income meets the offshore conditions, you can apply for exemption from tax
Make good use of charitable donation deductions: donations to approved charitable organisations can be deducted, capped at 35% of assessable profits

💡 SetupHK tip: tax planning must involve a professional accountant. Never decide for yourself whether an item is deductible. An incorrect return carries the risk of a fine even if it was not intentional.

Further reading: Audit services for Hong Kong companies

FAQ

Does a loss-making company still need to file a profits tax return?

Yes. Even if the company makes a loss, the return must still be submitted on time. The loss can be carried forward to later years to offset future assessable profits.

Is overseas income taxable in Hong Kong?

Hong Kong applies the territorial source principle. If profits arise purely outside Hong Kong, you can apply for an offshore income exemption. However, determining an “offshore source” follows strict criteria and must be assessed by a professional adviser; you cannot simply declare it yourself.

Do self-employed people also need to pay profits tax?

Yes. A self-employed person who carries on business in Hong Kong and earns profits must likewise pay profits tax on assessable profits, declared in the individual tax return (BIR60).

Further reading: How do freelancers file tax? A guide for the self-employed

What is provisional profits tax?

An arrangement under which the IRD collects part of the next year’s profits tax in advance, based on the assessed profits of the previous year of assessment. If the tax actually payable exceeds the provisional tax already paid, the difference must be paid; if too much was paid, it can be refunded or offset against the next year’s tax.

Further reading: Provisional tax calculation at a glance

Is profits tax payable separately on dividends received by shareholders?

No. Hong Kong dividends are distributions out of after-tax profits. The company has already paid profits tax on the profits, so shareholders receiving dividends generally need not pay tax again.

Further reading: Is tax payable on Hong Kong dividends? Full tax analysis

Leave tax filing to the professionals: SetupHK takes care of it for you

Tax filing involves a great deal of detail, and misreporting or omissions carry legal risk. SetupHK provides professional profits tax filing and tax planning services to help you file compliantly and save tax lawfully, so you can focus on growing your business.

Book a free consultation|Learn about SetupHK’s tax filing services