Hong Kong Profits Tax Guide 2024/25: Two-Tiered Rates for Businesses

Hong Kong profits tax is the tax levied on profits arising from a business, trade, or profession carried on in Hong Kong. For the 2024/25 year of assessment, profits tax applies at two-tiered rates to encourage small and medium enterprises. This guide covers the two-tiered profits tax rates, assessable profits, connected entities, filing obligations, allowable deductions, and provisional tax. Use our Hong Kong profits tax calculator to estimate your business tax liability.

Two-Tiered Profits Tax Rates

For the 2024/25 year of assessment, Hong Kong operates a two-tiered profits tax rate system designed to ease the burden on SMEs. The rates apply to any business other than a corporation (such as sole proprietorships and partnerships). The tiers are:

• The first HK$2 million of assessable profits: tax at 8.25%
• Assessable profits exceeding HK$2 million: tax at 16.5%

Corporations continue to be taxed at 16.5% on their entire assessable profits, subject to certain conditions. Keep in mind that if you own multiple businesses, the HK$2 million cap may need to be allocated among them. The IRD provides detailed guidance on how the two-tiered rates apply to connected entities.

Connected Entities and the Cap

If you carry on business through more than one entity that is connected, the HK$2 million two-tiered profits tax concession is shared among the connected entities. Connectedness is determined by ownership and management control. Therefore, if you operate two businesses that are connected, the total assessable profits across both businesses are subject to a single HK$2 million cap. This means careful planning is required when structuring multiple businesses in Hong Kong.

Assessable Profits and Territorial System

Profits tax is charged on profits arising in or derived from Hong Kong from a trade, profession, or business carried on in Hong Kong. The territorial basis means that profits sourced outside Hong Kong are generally exempt from profits tax, even if received by a Hong Kong company. Determining the source of profits requires analyzing the operations that generated the profits, including where contracts were negotiated, purchases and sales made, and where customers are located. For help determining assessable profits, reference ird.gov.hk guidance notes.

Filing Obligations

Every person carrying on a business, trade, or profession in Hong Kong must file a profits tax return annually. The return is issued by the IRD around April each year, and the filing deadline varies depending on whether the return covers a corporation, partnership, or non-resident. Even if your business makes a loss, you may still need to file a return to report that loss and carry it forward to offset future profits.

Allowable Deductions

The IRD permits a wide range of deductions against assessable profits. Common allowable deductions include rent, utilities, staff salaries, depreciation (wear and tear allowances), repairs and maintenance, travel expenses, and bad debts. However, some expenses are not deductible, such as capital expenditure (which may qualify for capital allowances instead), fines, and private expenses. Accurate record-keeping for at least seven years is essential to support your claims. Consult our Hong Kong tax allowances and deductions guide for a comprehensive overview.

Provisional Tax

Similar to salaries tax, businesses may be required to pay provisional profits tax in two installments for the following year. The provisional tax is calculated based on the preceding year's assessable profits. Payment is typically due in November and April. Failure to pay provisional tax on time results in surcharges and interest. If you believe your business's profits will be significantly lower in the coming year, you may apply for a holdover of provisional tax. Learn more in our Hong Kong provisional tax guide.

Frequently Asked Questions

What is the profits tax rate in Hong Kong for 2024/25?

The profits tax rate for unincorporated businesses (sole proprietorships and partnerships) is 8.25% on the first HK$2 million of assessable profits and 16.5% on profits exceeding HK$2 million. For corporations, the rate is 16.5% on all assessable profits.

How do I calculate my assessable profits?

Start with your business net profit and remove non-taxable income and capital items, then add back non-deductible expenses. Use our Hong Kong profits tax calculator to estimate your liability.

Are offshore services taxable in Hong Kong?

Generally no, if the income is derived from a Hong Kong business but sourced outside Hong Kong. The IRD evaluates a range of factors to determine the source of profits. See ird.gov.hk for detailed guidance.

Can I carry forward losses?

Yes, business losses can typically be carried forward and set off against future profits for up to several years, subject to continuity of ownership and business rules.

What are wear and tear allowances?

Wear and tear allowances are tax deductions for the depreciation of plant and machinery used in your Hong Kong business. They are claimed in addition to normal operating deductions and reduce your assessable profits.