Hong Kong Tax System – A Helpful Guide For Entrepreneurs

Starting a business in Hong Kong comes with an advantage many entrepreneurs overlook: the clarity of its tax system. The Hong Kong tax framework is simple, transparent, and result-driven. Profits earned locally are subject to tax, while foreign-sourced income is generally exempt, providing companies with room to expand efficiently. Corporate income tax, salaries tax, property tax, and stamp duty form the core, each clearly defined and administered by the Inland Revenue Department.

Furthermore, the Hong Kong taxation system is designed to reward innovation and operational success, thus creating a practical foundation for businesses in Asia and beyond. Let’s delve into the details.

Overview of the Hong Kong tax regime

First, it is essential for entrepreneurs and business leaders aiming to run a business in Asia to understand Hong Kong’s tax regime. There are four key components:

• The tax authority
• The territorial tax principle
• The tax year, and
• Tax filing obligations.

Together, they define how businesses and individuals interact with the Hong Kong tax system.

Tax authority

The Inland Revenue Department (IRD) is the central government body responsible for administering and enforcing Hong Kong’s tax system. It oversees all tax collection, including profits tax, salaries tax, property tax, and stamp duty, to make sure that individuals, corporations, and other entities meet their obligations.

The IRD also manages matters related to double taxation agreements (DTAs) and mutual agreement procedures (MAPs), helping businesses avoid being taxed twice on the same income when operating internationally. It provides guidance, clarifications, and rulings to taxpayers.

In addition, the IRD audits corporate and individual tax filings, investigates potential tax avoidance, and enforces penalties where necessary. At the same time, it offers electronic filing services, advance rulings, and taxpayer assistance programs.

Territorial tax principle

Hong Kong operates under a territorial tax principle, which forms a cornerstone of its tax system. Essentially, this principle means that only income or profits sourced within Hong Kong are subject to taxation. Conversely, income derived from activities conducted outside the territory is generally exempt from Hong Kong tax, provided certain conditions are met.

The territorial principle applies to the three main types of taxable income in Hong Kong:

• Profits from business activities (profits tax)
• Rental income from properties (property tax), and
• Employment income (salaries tax).

For example, a company selling products both locally and abroad will pay profits tax only on revenue generated from Hong Kong-based sales, whereas income from overseas transactions may qualify for exemption per the offshore claim process.

To determine eligibility for these exemptions, the Inland Revenue Department (IRD) considers factors such as where contracts are executed, where services are performed, and where profits are generated. Companies meeting these criteria can file for offshore tax claims.

Hong Kong tax year

The tax year in Hong Kong, or year of assessment, runs from April 1st to March 31st of the following year. This period determines the taxable timeframe for key income types, including profits tax, salaries tax, and property tax, and it is essential for planning financial reporting and cash flow management.

Businesses can opt for an alternative fiscal year if it aligns better with operational or accounting cycles. For instance, a company with seasonal revenue peaks might opt for January 1st to December 31st.

Taxpayers must submit tax returns within the deadlines set by the Inland Revenue Department (IRD), and late submissions or payments may incur penalties and interest. Additionally, companies can plan deductions, allowances, and profit recognition around the assessment year.

Tax filing obligation

In Hong Kong, fulfilling tax filing obligations is a key annual compliance requirement for both individuals and businesses. All taxpayers are required to submit the relevant tax return forms to the Inland Revenue Department (IRD) each year, reporting income, deductions, allowances, and tax liabilities accurately. Corporations typically file Profits Tax Returns, and individuals file Salaries Tax Returns.

Deadlines are strictly enforced:

• Businesses generally receive their tax returns in April, with report submission due by early August.
• Individuals have different deadlines depending on the filing method.

Late submission or faulty reporting can trigger penalties, interest charges, and audits.

You can prepare in advance by maintaining organized financial records, proper receipts, and supporting documentation, which simplifies filing and minimizes errors.

4 main types of taxes in Hong Kong

There are 4 fundamental types of taxes and duties applicable in accordance with the Hong Kong tax system, including Corporate Income Tax, Salaries Tax, Property Tax, and Stamp Duty.

Corporate Income Tax (Profits Tax)

Hong Kong Corporate Income Tax, officially known as Profits Tax, is levied on income arising from trade, profession, or business conducted in Hong Kong. Income derived outside Hong Kong generally qualifies for exemption under the territorial tax system. On the other hand, profits sourced locally are taxable.

Key obligations for businesses include:

• Filing an annual Profits Tax Return with the Inland Revenue Department (IRD)
• Submitting accurate tax computations, and
• Keeping proper records in English or Chinese for at least seven years.

Companies may also need to provide a balance sheet and, if applicable, an auditor’s report, depending on their size and statutory requirements.

Hong Kong applies a two‑tiered tax rate for corporations, as the table below:

Business type	First HK$2,000,000	Exceeding HK$2,000,000
Corporations	8.25%	16.5%
Unincorporated businesses	7.5%	15%

The territory’s network of over 50 comprehensive double taxation agreements significantly reduces or eliminates withholding tax on dividends, interest, and royalties when trading with treaty partners such as mainland China, the UK, and most EU countries.

For an engaging overview of why this makes Hong Kong so attractive, check out Hong Kong Tax Haven: Interesting Facts You Might Not Know.

Tax calculation

The Profits Tax is calculated as follows:

Tax payable = Assessable profits * Tax rate

Where:

Assessable profits = Taxable profit – Deducted expenses/ Amount – Loss (if any)

Additionally, certain sectors like insurance and treasury centres are bound to follow special rules, while passive foreign income may qualify for exemptions.

Example

ABC Electronics is a Hong Kong–Kong-incorporated company that earns HK$3,000,000 in assessable profits for the year. The company can deduct HK$500,000 in business expenses, leaving HK$2,500,000 as net assessable profits.

The first HK$2,000,000 is taxed at 8.25%, and the remaining HK$500,000 is taxed at 16.5%. Calculating the tax, ABC Electronics pays HK$165,000 on the first HK$2,000,000 and HK$82,500 on the remaining HK$500,000.

In total, they will pay HK$247,500 in profits tax.

Salaries Tax

Salaries tax is a tax that applies to income arising from employment, office, or pension in Hong Kong, even if that income has already been taxed in another jurisdiction.

The Inland Revenue Department assesses individuals each year based on income earned during the year of assessment, taking into account allowable deductions and personal allowances.

Chargeable income covers a wide range of employment-related payments:

• Salaries
• Wages
• Director’s fees
• Bonuses
• Allowances
• Commissions
• Stock awards
• Share options
• Pensions
• Retirement benefits, and
• Several perquisites.

The system employs a progressive rate structure that ranges from 2% to 17%. At the same time, Hong Kong applies a standard rate cap of 15% on net assessable income after deductions but before personal allowances.

Net chargeable income (HK$)	Rate	Tax for bracket
First 50,000	2%	1,000
Next 50,000	6%	3,000
Next 50,000	10%	5,000
Next 50,000	14%	7,000
Above 200,000	17%	17% of remainder

Tax calculation

The Salaries Tax is calculated as follows:

Tax payable = Net chargeable income * Tax rate

Where:

Net chargeable income = Total income – Non-assessable income – Allowable deduction – Personal allowances

Example

Sarah works in Hong Kong and earns HK$420,000 a year. After claiming HK$40,000 in allowable deductions and a single person allowance of HK$132,000, her net chargeable income becomes HK$248,000.

Her salaries tax under progressive rates is calculated as follows:

• First HK$50,000 at 2% gives HK$1,000
• Next HK$50,000 at 6% gives HK$3,000
• Next HK$50,000 at 10% gives HK$5,000
• Next HK$50,000 at 14% gives HK$7,000
• Remaining HK$48,000 at 17% gives HK$8,160

Total under progressive rates: HK$24,160

Next, compare the standard rate calculation:

• Net assessable income before allowances = HK$380,000
• Standard rate at 15% = HK$57,000

Since Hong Kong charges the lower of the two amounts, Sarah pays HK$24,160.

For a more detailed explanation and practical examples, please refer to our Hong Kong Salaries Tax Guide, where you can explore the rules, calculations, exemptions, and strategies for optimizing your salaries tax obligations.

Property tax

Property tax in Hong Kong is levied annually on owners receiving rental income from properties within the territory. Notably, rental income that is already subject to profits tax, such as income earned by companies trading or developing properties, is generally exempt from property tax.

Taxpayers liable for Hong Kong Property Tax must submit the relevant tax return to the Inland Revenue Department (IRD):

• BIR57 – Property jointly owned or co-owned by individuals or by corporations
• BIR58 – Corporations and bodies of persons

Returns are typically issued on the first working day of April and must be filed by May 2. In addition, payment is made in two installments: the first before the end of November and the second in April of the following year.

The tax is calculated using the Net Assessable Value (NAV), which equals the Assessable Value minus a statutory 20% allowance. The Assessable Value includes:

• Gross rent received or receivable, including any upfront payments
• License payments for property use
• Service charges or management fees paid directly by tenants
• Expenditures normally borne by the owner but paid by tenants
• Lump sum premiums received under lease agreements
• Recovered irrecoverable rent previously deducted

Then, the property tax is charged at a flat 15% rate on the NAV.

Tax calculation

The Property Tax calculation is as follows:

Tax payable = Net assessable value (NAV) * 15%

Where

• Net assessable value (NAV) = Assessable value – Statutory allowance (20% of assessable value); and
• Assessable value = Rental Income – Irrecoverable Rent – Rates Paid by Owners

Example

Suppose Mr. Lee owns a residential property in Hong Kong and rents it out. Over the year, he receives HK$600,000 in gross rent. He also pays HK$30,000 in rates, and HK$10,000 of previously deducted irrecoverable rent is later recovered.

To calculate the assessable value, the recoverable amounts and rates are subtracted from the gross rent, resulting in HK$560,000. Hong Kong grants a statutory allowance of 20% on the assessable value, which reduces the net assessable value to HK$448,000. The property tax rate of 15% is then applied to this net assessable value.

As a result, Mr. Lee’s property tax for the year amounts to HK$67,200.

Stamp Duty

Stamp Duty in Hong Kong is a tax imposed on legal instruments that document transactions involving the sale, transfer, or lease of properties and assets. Its purpose is twofold:

• Regulating property transactions: Stamp duties are imposed by the government to regulate the real estate market, preventing property speculation and upholding market stability.
• Fostering the legality of documents: Stamp duty validates certain documents, enabling them to be legally recognized and enforceable in Hong Kong courts.

Key updates

• Abolition of SSD and BSD: Since 28 February 2024, Special Stamp Duty (SSD) and Buyer’s Stamp Duty (BSD) on residential property transactions have been cancelled.
• AVD rate alignment: The old 7.5% rate under Part 1 of Scale 1 has been replaced; from 28 February 2024, AVD for both residential and non‑residential properties now follows Scale 2 rates.
• Value band adjustment: Effective from 26 February 2025, the maximum property value chargeable to the minimum AVD of HK$100 has been raised from HK$3 million to HK$4 million.

Current types of stamp duty

• Ad Valorem Stamp Duty (AVD): Applies to property sales, now using updated Scale 2 rates that start as low as HK$100 for lower-value property transfers.
• Lease Stamp Duty: Duty depends on lease length — for example, 0.25% for lease ≤ 1 year, 0.5% for lease >1 year, and ≤3 years (based on IRD guidance)
• Share Transfer Duty: For Hong Kong share transfers, the rate is 0.1% on the higher of contract consideration or market value.

These updates simplify the stamp duty regime, reduce costs for many property buyers, and align duty rates with more modest property values, ultimately easing the burden on lower‑value transactions.

For more detailed insights, please read our comprehensive guide on Hong Kong Stamp Duty or chat with our team through our chatbox.

Conclusion

The Hong Kong tax system centers on four main types of taxes: Profit Tax, Salaries Tax, Property Tax, and Stamp Duty. Notably, income that falls outside these categories, such as capital gains, interest, dividends, and sales tax, is generally exempt. The system simplifies financial planning and enhances the business environment.

As a result, Hong Kong’s competitive tax framework continues to attract international talent and businesses, further reinforcing its position as a premier destination for entrepreneurship and relocation.

Modern entrepreneurs increasingly pair these accounting services Hong Kong with digital platforms for real-time bookkeeping and e-filing, dramatically reducing errors and late penalties. Discover the latest tools that save time and money in our guide Streamlining Tax Compliance: Essential Digital Solutions For Businesses.

For any questions regarding Hong Kong’s tax regulations or need guidance on managing a business effectively, don’t hesitate to reach out to us at service@bbcincorp.com to receive personalized advice tailored to your circumstances.

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