A Complete Guide for Hong Kong Profit Tax

Hong Kong tax rates are among the lowest in the world

Hong Kong is becoming a business paradise for local and foreign investors thanks to its simple taxation structure and low taxation rates. The government of Hong Kong opens their doors for foreign investors by easing the process of setting up new businesses in the region.

If you are thinking of incorporating your company in Hong Kong and avail all the incentives and benefits, then you should also gather all the important information about Hong Kong Profit taxation or corporate taxation. In this article you will get a detailed overview of applicable income tax rates, taxation system and tax incentives for Hong Kong companies.

Hong Kong Profit Taxation:

Profit tax is a type of income tax levied on all types of businesses in Hong Kong. According to the definition provided by the Inland Revenue Ordinance (IRO) states that every business whether it is sole proprietorship, company, partnership, trustee or any other type of firm carrying on any trade, profession or business in Hong Kong is liable to pay profit tax on their assessable profits.

The following types of sources are liable to pay profit tax

• Business entities operating within Hong Kong
• Income generating from such sources
• Profit arising from any other source within the Hong Kong

Profit Tax Rates:

In Hong Kong companies are allowed to choose from two options for profit tax rates. The one called Single-Tier corporate taxation system and the other is Two-Tier corporation system.

Single-Tier system

Under the Single-Tier system, corporation’s assessable profits are taxed at 16.5% while unincorporated businesses are taxed at 15%. From April 1, 2018 Hong Kong introduced a Two-Tier taxation system for businesses to reduce the tax burden of small to medium size enterprises.

Two-Tier system

Under the Two-Tier taxation system

• The first HK$2 million profit of corporations will be taxed at 8.25% and the remaining profit will be taxed at the existing rates that is 16.5%.
• For unincorporated, the first HK$2 million of assessable profit will be taxed at 7.5% and the remaining will be taxed at 15%.

Hong Kong Tax Year:

In Hong Kong corporate income tax is based on the year of assessment which normally starts from 1st April and ends on 31st March. The IRD issues the corporate profit tax returns (PTR) on the first day of April every year.

The companies in Hong Kong are allowed to select their financial year according to their business cycle or requirement of tax recording and hence their date of filing PTR is extended through a simple request. For more information about the financial year and normal filing date read the below table

In case of a newly incorporated company, the Inland Revenue Department will issue the PTR after 18 months from the date of commencement of business or date of incorporation.

Documents Required for Submission:

The company must file the annual set of return with the following documents:

• The tax return form issued by Inland Revenue Department
• A supplementary form issued by IRD containing your tax and financial data
• Audited financial reports with auditor reports containing information about the year of assessment.
• A calculation showing the tax amount and assessable profit or loss
• Any other document specified by the IRD authorities through notification or otherwise.