Profits tax, salaries tax, stamp duty — and why no capital gains tax, no GST, and no dividend withholding tax make Hong Kong one of the most efficient tax environments for businesses.
Three direct taxes are relevant to operating businesses in Hong Kong: profits tax, salaries tax, and property tax. There is no GST, no VAT, no capital gains tax, no estate duty, and no withholding tax on dividends paid to shareholders. In practice, profits tax is the only material corporate tax exposure for most businesses.
Profits tax is charged on every person — individual, partnership, or corporation — carrying on a trade, profession, or business in Hong Kong, in respect of assessable profits arising in or derived from Hong Kong. Profits that arise entirely offshore may not be taxable here.
Under the two-tier profits tax regime introduced in 2018:
Only one entity within a group of connected entities can claim the reduced 8.25% rate. A business generating HK$1 million of profit pays HK$82,500 in tax — an effective rate of 8.25%.
Deductible expenses include outgoings and expenses incurred in the production of assessable profits (salaries, rent, professional fees, depreciation on capital assets). Capital expenditure on certain qualifying assets is deductible over three years. R&D expenditure on qualifying activities is deductible at 300% for the first HK$2 million and 200% thereafter.
The IRD operates a bulk filing programme under which return deadlines are assigned based on your accounting year-end date and your filing group. Deadlines vary — first returns for newly incorporated companies are typically issued around 18 months after incorporation. Late filing attracts penalties and can result in estimated assessments. Always work with a registered Hong Kong accountant on your tax filings.
Profits that arise entirely from activities outside Hong Kong may be exempt from profits tax. However, the offshore claim has become significantly harder to sustain since Hong Kong adopted the OECD's Foreign-Sourced Income Exemption (FSIE) regime in 2023. Under FSIE, certain passive income (dividends, interest, IP income, disposal gains) received from a foreign source is subject to profits tax unless the company demonstrates adequate economic substance in Hong Kong. Seek specific tax advice before relying on any offshore profits claim.
Salaries tax is payable by individuals on income arising in or derived from Hong Kong from an office, employment, or pension. Rates are progressive — 2%, 6%, 10%, 14%, and 17% on successive bands — subject to a standard rate cap of 15% of net income after allowances. As an employer, notify the IRD of new employees, notify of departing employees at least one month before departure, and comply with withholding rules for departing employees.
Stamp duty is payable on transfers of Hong Kong stock (0.2% of the higher of consideration or market value, split between buyer and seller) and on leases of Hong Kong property.
Hong Kong has Comprehensive Avoidance of Double Taxation Agreements (CDTAs) with over 45 jurisdictions including mainland China, the UK, Australia, Canada, France, Germany, Japan, Singapore, and the UAE. These treaties reduce withholding tax rates on cross-border payments of dividends, interest, and royalties.
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