Hong Kong Profits Tax Explained: The Two-Tier System (2026)
How Hong Kong's two-tier profits tax works in 2026 — the 8.25% and 16.5% rates, the HK$2M threshold, the territorial principle, and how genuinely offshore profits can be exempt.
How Hong Kong profits tax works#
Hong Kong profits tax is famously light, and it rests on two ideas: a two-tier rate and a territorial system. For companies, the first HK$2 million of assessable profits is taxed at 8.25%, and profits above that at 16.5%. There is no GST or VAT and no capital-gains tax. Combined with territorial taxation — where only profits sourced in Hong Kong are taxable — this is what makes the jurisdiction so attractive to international trading and holding businesses.
The two-tier rates#
- Corporations: 8.25% on the first HK$2M of assessable profits, then 16.5%.
- Unincorporated businesses (sole proprietorships, partnerships): 7.5% on the first HK$2M, then 15%.
Only one entity within a group of connected entities can elect to enjoy the lower first-tier rate in a given year, so groups must nominate which company claims it.
The territorial principle — and offshore claims#
Hong Kong taxes profits on a territorial basis: only income arising in or derived from Hong Kong is chargeable. Profits that are genuinely earned offshore may be exempt through an offshore profits claim. This is powerful, but it is not automatic — the IRD scrutinises offshore claims closely, and you must be able to demonstrate that the profit-generating activities genuinely took place outside Hong Kong. Treat an offshore claim as something to substantiate with evidence and professional advice, not a default setting.
No GST, no capital gains tax#
Hong Kong levies no GST or VAT and no tax on capital gains. For most operating companies, profits tax is the primary tax to plan for — a big part of why the jurisdiction is a favoured base for holding companies and cross-border trade.
Filing and audit#
Profits tax is filed annually when the IRD issues your profits tax return. Your return must be supported by audited financial statements prepared by a Hong Kong CPA — the audit is a compliance cost every active company should budget for. Deadlines vary by your financial year-end and accounting date, so confirm yours with your accountant.
Singapore or Hong Kong?#
Hong Kong's low, territorial profits tax is a major draw — but Singapore's treaty network, grants and start-up exemptions suit different strategies. See our Singapore vs Hong Kong comparison to weigh the two for your business.
Get matched with vetted Hong Kong providers#
Getting your Hong Kong tax position and audit right from year one saves money and stress. Tell us your requirements and we'll match you with exactly 3 vetted Hong Kong accounting and corporate service providers within 24 hours — independent, free, no obligation.
Common questions
### What is Hong Kong's two-tier profits tax rate?
For corporations, the first HK$2 million of assessable profits is taxed at 8.25%, and profits above HK$2 million at 16.5%. Unincorporated businesses pay 7.5% and 15% respectively.
Are offshore profits taxed in Hong Kong?
Hong Kong taxes on a territorial basis, so genuinely offshore profits may be exempt via an offshore profits claim. The claim is not automatic — the IRD requires evidence that the profit-generating activity occurred outside Hong Kong.
Does Hong Kong have GST or capital gains tax?
No. Hong Kong levies no GST or VAT and no capital-gains tax. Profits tax is the main tax most operating companies plan for.
Do I need audited accounts to file profits tax?
Yes. Your profits tax return must be supported by financial statements audited by a Hong Kong CPA.
Expand With Asia Editorial
Independent research desk
Expand With Asia is an independent information platform — not a corporate service provider. Our editorial desk verifies every figure against primary sources (ACRA, IRAS, MOM, EDB) before publication.
Sources & verification: Verified 2026 against the Hong Kong Inland Revenue Department (IRD) and the two-tiered profits tax regime.