{"id":8078,"date":"2026-03-10T14:24:24","date_gmt":"2026-03-10T06:24:24","guid":{"rendered":"https:\/\/setuphk.com\/?p=8078"},"modified":"2026-03-12T09:09:54","modified_gmt":"2026-03-12T01:09:54","slug":"hong-kong-profits-tax-guide","status":"publish","type":"post","link":"https:\/\/setuphk.com\/en\/hong-kong-profits-tax-guide\/","title":{"rendered":"Hong Kong profits tax basics: key tax points for first-time founders"},"content":{"rendered":"<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Hong Kong profits tax only taxes profits arising from a business in Hong Kong. Limited companies are subject to the two-tiered rates: 8.25% on the first HK$2 million and 16.5% on the excess. If the company makes a loss, the return must still be filed on time once received.<\/p>\n<\/blockquote>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Key takeaways<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Hong Kong taxes on a territorial basis, and offshore profits can in principle be exempted on application<\/li>\n\n\n\n<li>Limited company: 8.25% tax rate on the first HK$2 million of profit, 16.5% on the excess<\/li>\n\n\n\n<li>A tax return must be filed even with a loss or zero income<\/li>\n\n\n\n<li>A new company usually receives its first tax return about 18 months after incorporation<\/li>\n\n\n\n<li>Late filing may result in an estimated assessment and penalties<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">What is profits tax? Only Hong Kong-sourced profits are taxable<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Profits tax is charged under the Inland Revenue Ordinance (Cap. 112), and the core principle is simply this: <strong>Territorial source principle<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">only business profits arising in Hong Kong are taxable. If your clients are overseas, contracts are signed overseas and services are delivered overseas, that portion of the profits can in principle be put forward for <strong>Offshore income exemption<\/strong>, but you must hold sufficient written evidence, and the Inland Revenue Department (IRD) is entitled to check.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hong Kong has no VAT, capital gains tax or dividend tax. The three direct taxes currently in place target different sources of income:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Tax<\/th><th>Taxable subject<\/th><th>Who pays<\/th><\/tr><\/thead><tbody><tr><td>profits tax<\/td><td>Business profits<\/td><td>Companies or sole proprietors<\/td><\/tr><tr><td>Salaries tax<\/td><td>Employment income<\/td><td>Employees<\/td><\/tr><tr><td>Property tax<\/td><td>Rental income<\/td><td>Owners of rental property<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">As a company owner, you mainly face profits tax. If you also have employment income, you can opt for <strong>Personal assessment<\/strong> to combine your income for assessment, which may lawfully reduce your overall tax burden.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Who has to pay profits tax?<\/h3>\n\n\n\n<figure class=\"wp-block-image size-large\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"1024\" src=\"https:\/\/setuphk.com\/wp-content\/uploads\/2026\/03\/hong-kong-profits-tax-guide-1-1024x1024.jpg\" alt=\"Who has to pay profits tax?\" class=\"wp-image-8079\" srcset=\"https:\/\/setuphk.com\/wp-content\/uploads\/2026\/03\/hong-kong-profits-tax-guide-1-1024x1024.jpg 1024w, https:\/\/setuphk.com\/wp-content\/uploads\/2026\/03\/hong-kong-profits-tax-guide-1-300x300.jpg 300w, https:\/\/setuphk.com\/wp-content\/uploads\/2026\/03\/hong-kong-profits-tax-guide-1-150x150.jpg 150w, https:\/\/setuphk.com\/wp-content\/uploads\/2026\/03\/hong-kong-profits-tax-guide-1-768x768.jpg 768w, https:\/\/setuphk.com\/wp-content\/uploads\/2026\/03\/hong-kong-profits-tax-guide-1-12x12.jpg 12w, https:\/\/setuphk.com\/wp-content\/uploads\/2026\/03\/hong-kong-profits-tax-guide-1.jpg 1300w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Profits tax applies to taxpayers classified by <strong>legal liability structure<\/strong> into two categories:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Company type<\/th><th>Specific forms<\/th><th>Legal liability<\/th><\/tr><\/thead><tbody><tr><td>Limited company<\/td><td>Private limited companies, public limited companies<\/td><td>Shareholders' liability is limited to their capital contribution<\/td><\/tr><tr><td>Unlimited company<\/td><td>Sole proprietorships, partnerships<\/td><td>The proprietor or partners bear unlimited liability for debts<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">In addition, <strong>non-Hong Kong resident businesses<\/strong>, whether limited or unlimited companies, must likewise file profits tax on the relevant profits if they have a permanent establishment in Hong Kong. Even if there is no profit in a given year, the return must still be filed on time once received.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is the Hong Kong profits tax rate? The two-tiered system lets SMEs pay nearly half as much<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Limited companies are subject to a two-tiered profits tax rate regime, in effect since the 2018\/19 year of assessment:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Profit band<\/th><th>Limited company rate<\/th><th>Unlimited company rate<\/th><\/tr><\/thead><tbody><tr><td>First HK$2 million<\/td><td><strong>8.25%<\/strong><\/td><td>7.5%<\/td><\/tr><tr><td>Remainder<\/td><td>16.5%<\/td><td>15%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Each group may only nominate <strong>One<\/strong> entity enjoys the two-tiered rates, to prevent large enterprises from gaining an advantage by splitting up their businesses.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What does the two-tiered system mean in practice?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">If a limited company makes a first-year profit of HK$1 million, at 8.25% it pays tax of only HK$82,500. The same amount at the standard rate of 16.5% would be HK$165,000, so the two-tiered system saves half outright. For a start-up, this is a very substantial concession.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Although the rates are fixed, how much you actually pay depends on the calculation of \u201cassessable profits\u201d. This involves which expenses are deductible and which are not. For the detailed deductible items and calculation method, please see the articles below.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Further reading: \u201c<a href=\"https:\/\/setuphk.com\/en\/profits-tax\/\" target=\"_blank\" rel=\"noreferrer noopener\">Hong Kong company tax filing guide: profits tax filing essentials at a glance<\/a>\u201d<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">When will you receive a tax return? About 18 months after incorporation<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>A new company usually receives its first profits tax return (BIR51) about 18 months after incorporation.<\/strong> The reason is that the IRD begins assessing a new company only after it has completed its first full financial year. The exact timing depends on your <strong>company's year-end date<\/strong>\u2013 that is, the accounting date you choose. Common choices are 31 March (aligned with the IRD's year of assessment) or 31 December (aligned with the calendar year), and it should be decided and recorded when you set up the company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The full process from receiving the tax return to paying the tax<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Once you receive the BIR51, the whole filing process is as follows:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Receive the profits tax return (BIR51)<\/li>\n\n\n\n<li>Arrange the audit (a practising certified public accountant must be appointed to issue the audit report)<\/li>\n\n\n\n<li>Complete the tax return and tax computation<\/li>\n\n\n\n<li>Submit to the IRD before the deadline (usually within 1 month, with an extra 2 months for new companies)<\/li>\n\n\n\n<li>Receive the notice of assessment<\/li>\n\n\n\n<li>Pay the tax on time<\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\">The whole process, from receiving the return to completing payment, usually takes 3\u20136 months.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Why must the audit be arranged early?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>The audit is a prerequisite step in the process and cannot wait until the return arrives.<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Good auditors are busy before and after the tax-filing peak season, so finding one at short notice often means a long wait, and if the audit cannot be completed before the deadline, your return will be late. We recommend starting to organise your accounts in the company's first year and arranging the audit immediately after the financial year ends, rather than leaving it until the last minute.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Do you still need to file a return if the company has no income, or even makes a loss?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Many people think that if they made no money this year they don't need to file. But <strong>once you receive a tax return from the IRD, you must submit it by the deadline, whether or not there was any income.<\/strong> Here are three situations commonly misunderstood as not requiring a return:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Situation 1: The company has just been incorporated and has not yet started business<\/strong><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">After receiving the return, state on the form that business has not yet commenced and submit it by the deadline as usual. You cannot ignore it just because you haven't started trading.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Situation 2: The business operates but made a loss for the year<\/strong><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">A return must be submitted; enter zero or a negative figure for assessable profits and no tax is payable. The loss can be <strong>carried forward to offset future profits in later years<\/strong>, which makes it an important tax asset, so it must be properly declared and the relevant accounting records kept.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Situation 3: There is income but the amount is very small<\/strong><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">You must still file as normal; you cannot skip it because the amount is small. The IRD does not exempt you from the filing obligation because your profit is slight.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The cost of being late is higher than the cost of filing<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Once you receive an estimated assessment, you have to lodge an objection, a process that is complicated and time-consuming, far more troublesome than filing on time:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Breach<\/th><th>Possible consequences<\/th><\/tr><\/thead><tbody><tr><td>Late submission of the tax return<\/td><td>HK$10,000 penalty + triple the tax<\/td><\/tr><tr><td>Failure to file without reasonable excuse<\/td><td>Fine of up to HK$50,000 + triple the tax + imprisonment of up to 3 years<\/td><\/tr><tr><td>IRD issues an estimated assessment<\/td><td>The amount is usually higher than the actual tax, and the objection procedure is complicated and time-consuming<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">First year of your company: 3 things to prepare early<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Many founders ignore tax planning completely in the first year and only start to panic when the return arrives in month 18. The following three things should start from day one of setting up the company:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Choose a year-end date and put it on record<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The year-end date affects the timing of your first tax return and the filing category. Once it is set, your accounts are closed on this date every year, and changing it later is a complicated procedure, so think it through when setting up the company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Keep books from the very first transaction<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Whether you use Excel, accounting software or an accountant, <strong>all income and expenses must be recorded, and documents kept for at least 7 years<\/strong>. Without complete accounts, the auditor cannot issue a report and tax filing cannot proceed. The tidier the accounts, the lower the audit fee and the smaller the risk of a later tax review.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Start arranging the audit in the company's 12th month<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Don't wait for the tax return to arrive before looking for an auditor. Once the financial year ends and the accounts are in order, contact one immediately. Arranging early ensures completion before the deadline and gives you more time to deal with any accounting issues, avoiding last-minute fixes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">FAQ<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Does a newly set up company have to file a tax return?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Yes. Even if you have not yet started trading, you must file on time once you receive the tax return from the IRD. Even if assessable profits are nil, you must still file; you cannot skip it just because you \u201cdidn't make any money\u201d.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Do companies with losses need to file a tax return?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">You must file a return, but you do not need to pay tax. Losses can be carried forward to the next year to offset future profits and are an important tax asset, so do not ignore them just because there is no profit.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Can I delay filing?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">&nbsp;Yes. After appointing a tax representative, an extension can usually be obtained; even without one, you can apply to the IRD before the deadline and simply state your reasons.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What happens if I don't file?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Late filing of a tax return may result in a fine of HK$10,000 and triple the tax, and in serious cases prosecution, and also affects the company's business reputation and future financing applications.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What can be deducted for profits tax?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">All reasonable expenses incurred in producing business profits are deductible. The key test is \u201cbusiness relevance\u201d, rather than checking items one by one against a list. Private expenses must never be mixed in; for the rest, if you have receipts and can clearly explain the business purpose, they can generally be deducted.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Is offshore income tax-exempt?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">In principle you can apply for the offshore income exemption, but you must provide sufficient evidence, including contracts, correspondence records and the place where services were delivered. The IRD's review is strict and applications are not approved automatically; we recommend engaging a professional to help prepare the application materials.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Not sure how to calculate profits tax? Leave it to SetupHK<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">For first-time founders facing profits tax, the places where people most often get stuck are audit arrangements, completing the tax return and the tax computation. If needed, feel free to contact SetupHK <a href=\"https:\/\/setuphk.com\/en\/contact-us\/\" target=\"_blank\" rel=\"noreferrer noopener\">Enquire<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Further reading:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201c<a href=\"https:\/\/setuphk.com\/en\/hk-register-hkcompany-guide\/\" target=\"_blank\" rel=\"noreferrer noopener\">Complete guide to forming a company in Hong Kong: process, costs and key points<\/a>\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201c<a href=\"https:\/\/setuphk.com\/en\/tax-filing-services-hk\/\" target=\"_blank\" rel=\"noreferrer noopener\">What do Hong Kong tax filing services include? Company tax filing process, fees and real benefits explained<\/a>\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>","protected":false},"excerpt":{"rendered":"<p>\u9999\u6e2f\u5229\u5f97\u7a05\u53ea\u5c0d\u9999\u6e2f\u7684\u696d\u52d9\u5229\u6f64\u8ab2\u7a05\uff0c\u6709\u9650\u516c\u53f8\u9069\u7528\u5169\u7d1a\u5236\u7a05\u7387\uff0c\u9996200\u842c\u63098.25%\u3001\u8d85\u51fa\u90e8\u5206\u630916.5%\u3002\u82e5\u516c\u53f8 [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":8151,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[75,76,397],"class_list":["post-8078","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-information","tag-75","tag-76","tag-397"],"_links":{"self":[{"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/posts\/8078","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/comments?post=8078"}],"version-history":[{"count":3,"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/posts\/8078\/revisions"}],"predecessor-version":[{"id":8150,"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/posts\/8078\/revisions\/8150"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/media\/8151"}],"wp:attachment":[{"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/media?parent=8078"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/categories?post=8078"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/setuphk.com\/en\/wp-json\/wp\/v2\/tags?post=8078"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}