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Overview of the Hong Kong Tax System

A practical introduction to Hong Kong’s simple, territorial-based tax regime for businesses and individuals.

Hong Kong is known for its simple, transparent, and business-friendly tax regime. The city follows a territorial basis of taxation, meaning that only income arising in or derived from Hong Kong is subject to tax. Foreign-sourced income is generally not taxable, even if it is remitted to Hong Kong.

Key Characteristics of the Hong Kong Tax System:

  • No Capital Gains Tax
    Profits from the sale of capital assets are not taxed in Hong Kong.

  • No Withholding Tax on Dividends or Interest
    Dividends and interest payments made by Hong Kong entities are not subject to withholding tax.

  • No VAT or GST
    Hong Kong does not impose a value-added tax or goods and services tax, which simplifies compliance for businesses.

  • Flat Tax Rates
    Hong Kong applies flat tax rates with minimal deductions, making the tax calculation straightforward.

Main Types of Taxes in Hong Kong:

  • Profits Tax
    Charged on income earned by corporations, partnerships, and sole proprietors from business activities carried out in Hong Kong.

    • Standard corporate rate: 16.5%

    • For the first HKD 2 million of assessable profits: 8.25% (under the two-tiered tax regime)

  • Salaries Tax
    Applies to income from employment, office, or pension arising in or derived from Hong Kong.

    • Progressive rates from 2% to 17%, or a flat rate of 15% (whichever is lower)

  • Property Tax
    Levied on income derived from renting property located in Hong Kong. The standard rate is 15% on net assessable value.

Tax Year and Filing

The Hong Kong tax year runs from April 1 to March 31.
Companies and individuals must file their tax returns annually.

  • Profits Tax Return (PTR) is typically issued by the Inland Revenue Department (IRD) in April.

  • Employer’s Return and Salaries Tax Return must also be submitted annually for those with employees or salary income.

Сompanies may choose a different financial year-end that better suits their business cycle (e.g., December 31 or any other date). This flexibility allows businesses to align accounting and reporting periods across jurisdictions if needed.

 

Offshore Tax Exemption

Companies that earn income solely from outside Hong Kong may apply for an offshore profits claim. If approved by the IRD, such income will not be subject to profits tax. However, proper documentation and substance tests are required.

Summary

Hong Kong offers one of the most efficient and competitive tax environments in the world, particularly attractive for international business. The low rates, lack of indirect taxes, and territorial principle make it a preferred jurisdiction for many entrepreneurs and companies.