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Hong Kong’s basis of taxation on profits from businesses

A Hong Kong Profit Tax Return is a form that businesses and individuals who run a business in Hong Kong must file with the Inland Revenue Department (IRD).

This return reports the profits or losses made during a specific accounting period and is used to calculate the amount of profit tax owed.

In Hong Kong, profits tax is levied on income earned from any trade, profession, or business conducted within the territory. This means that if a company or individual carries out business activities in Hong Kong and generates profits from those activities, those profits are subject to taxation.

The tax system distinguishes between corporations and unincorporated businesses. Corporations, such as limited companies, are taxed at a rate of 16.5% on their assessable profits. On the other hand, unincorporated businesses, which include sole proprietorships and partnerships, face a slightly lower tax rate of 15%.

Hong Kong operates a two-tiered profits tax system, which was introduced to provide tax relief and encourage business growth, especially for small and medium-sized enterprises. Under this system, the first tier applies a lower tax rate to the initial portion of a company’s assessable profits. Specifically, profits up to a certain threshold are taxed at a reduced rate. Any profits above this threshold are then taxed at the standard rate.

For example, the first 2 million Hong Kong dollars of assessable profits might be taxed at a lower rate of 8.25 percent, while profits exceeding that amount are taxed at the normal rate of 16.5 percent.