Hong Kong Business Tax: Rates, FSIE, Payroll and Deductions

Hong Kong business tax is mainly profits tax, charged on profits that arise in or are derived from Hong Kong. A corporation pays 8.25% on its first HK$2 million of assessable profits and 16.5% on the rest. Employers also carry payroll, MPF and record-keeping duties, and some foreign-sourced income is taxed when it is received in Hong Kong.

This is the hub for our guides on Hong Kong business tax. Read it for the whole picture, then open the guide for the part that applies to you: the rates, the foreign-sourced income exemption (FSIE), dividends, interest and royalties, employer obligations, or deductions and losses. The figures below come from the Inland Revenue Department (IRD) and the Mandatory Provident Fund Schemes Authority (MPFA), checked on 15 October 2026.

How does Hong Kong tax a business?

Hong Kong charges tax on a territorial basis. Under the territorial source principle, the IRD's brief guide to taxes says profits are taxable if they arise in or are derived from Hong Kong from a trade, profession or business, with no distinction between residents and non-residents. Whether profits are Hong Kong-sourced is largely a question of fact, so the contracts, the people and the place where decisions are made all matter.

Three taxes touch most businesses:

• Profits tax on the business's assessable profits.
• Salaries tax, which the employer does not pay but must report and support through returns.
• MPF contributions, which are not a tax but are a fixed payroll cost.

Our post on Hong Kong offshore tax explains how the territorial source principle plays out for a trading company, and our guide to the Hong Kong tax residency certificate covers proof of residence for treaty purposes.

What are the profits tax rates?

Since the 2018/19 year of assessment, Hong Kong has applied a two-tier rate structure.

Only one entity in a group of connected entities can use the lower tier in a year. Connected means one controls the other, or both are under the same controlling entity, with control generally meaning more than 50% of ownership, voting rights or profit entitlement. If connected entities exist and nobody validly nominates, all the profits of each entity are taxed at the standard rate.

The full walk-through, with worked examples and filing steps, is in our guide to the Hong Kong corporate tax rate.

What is the FSIE regime and who does it affect?

The foreign-sourced income exemption regime took effect on 1 January 2023 for interest, dividends, intellectual property income and gains on equity interests. From 1 January 2024 it also covers gains on disposal of other property. It applies only to members of a multinational enterprise group.

In short, if a covered entity that carries on business in Hong Kong receives specified foreign-sourced passive income in Hong Kong, the income is deemed Hong Kong-sourced and chargeable to profits tax unless an exception applies. The exceptions turn on economic substance, a participation test, a nexus rule for IP income and an intra-group transfer relief.

Single-entity businesses and local groups are generally outside the regime, because group status follows accounting consolidation. Our guide to FSIE in Hong Kong explains each exception and the compliance steps.

How are dividends, interest and royalties taxed?

The answer differs by payment type and by who is on each side of the payment.

• Dividends. The IRD says dividends received from a corporation that is subject to Hong Kong profits tax are excluded from the recipient's assessable profits.
• Interest. Interest on deposits placed with an authorized institution is exempt, except for financial institutions.
• Royalties. Sums paid for the use of patents, trade marks and copyrights in Hong Kong are deemed Hong Kong-sourced, and a payer of certain sums to non-residents must deduct an amount sufficient to meet the tax due.

Treaty rates can change the picture for cross-border payments, and the owner's own country taxes dividends in its own way. Our guide to dividends, interest and royalties in Hong Kong sets out each payment type with examples. If you are a founder from Russia or the CIS, also read our post on CFC rules for Hong Kong companies.

What must an employer do?

Employer duties start with the first hire. The IRD asks employers to keep payroll records for at least seven years and to file the right returns on time.

Our guide to Hong Kong MPF employer duties covers registration, contributions, employee returns and penalties, and the post on Hong Kong salaries tax explains what your staff pay.

What can a company deduct, and how do losses work?

Profits tax is charged on assessable profits, which means income less deductible expenses and allowances. Expenses are deductible in general if they are incurred in producing chargeable profits. Domestic or private expenses, capital expenditure and sums recoverable under insurance are not deductible.

Depreciation allowances replace deductions for capital assets. For plant and machinery the IRD describes a 60% initial allowance plus annual allowances of 10%, 20% or 30% on the reducing value. Losses are carried forward and set against future profits of the same trade. A corporation with more than one trade may offset the loss of one against the profit of another.

The worked examples and the rules on what is and is not deductible are in our guide to Hong Kong tax deductions and losses.

What are the filing duties and deadlines?

Hong Kong does not have one calendar date for every company. The basis period usually ends on 31 March or on the company's own accounting date, and the IRD issues the profits tax return after that.

Fixed points that apply regardless:

1. Business registration within one month of starting business.
2. Notice of chargeability. If you are chargeable but have not received a return, notify the IRD within four months after the end of the basis period (section 51(2)).
3. Cessation. Notify the Commissioner within one month of ceasing a business (section 51(6)).
4. Change of address. Notify within one month (section 51(8)).
5. Records. Keep business records for at least seven years (section 51C).

Our guides to Hong Kong company annual compliance and audit requirements set the rest of the annual calendar.

Who is responsible for what?

Business tax is not one task. Different people own different parts, and gaps between them are where deadlines are missed.

Whoever holds each job, the director stays accountable for what the company files. A written split of duties, with names and dates, is cheap and prevents most of the disputes we see between founders and their providers.

What does a typical year look like?

Hong Kong has no single filing date for every company, so build a calendar around your own basis period. A practical pattern follows.

1. At the start. Register the business within one month, set up the books and choose an MPF scheme before the first hire.
2. Each month. Pay MPF by the 10th for monthly-paid staff, and keep invoices, payroll and bank records.
3. Within three months of each hire. File the new-employee form for anyone likely to be chargeable.
4. When the IRD issues returns. Lodge the Employer's Return within one month, and file the profits tax return by the date on the notice.
5. Year end. Finalise accounts, update the fixed asset register and the loss schedule, and review any foreign income received in Hong Kong.
6. When something changes. Notify the IRD within one month of ceasing business or changing address.

The headline is that most deadlines are tied to events (a hire, a departure, a cessation) rather than to a fixed calendar date. That is why a rolling checklist works better than a yearly reminder.

What happens if you get it wrong?

Penalties are real, and they climb quickly. According to the IRD:

• An incorrect return without reasonable excuse can bring a fine of HK$10,000 plus a further fine of treble the undercharged tax.
• A wilful incorrect return with intent to evade can bring a fine of HK$50,000, treble the undercharged tax and up to three years in prison.
• Failing to keep sufficient records can bring a fine of up to HK$100,000.
• Late payment attracts a 5% surcharge, and a further 10% if tax is still unpaid six months after the due date.

These are statutory maximums and the outcome depends on the facts. The practical lesson is simple: keep records, file on time and write down the basis for any position that profits are offshore.

Which guide should you read first?

Use this table to pick your starting point.

If you are still choosing a jurisdiction, compare Hong Kong with Singapore. To set up the company itself, see our Hong Kong company registration service, or for tax filing and planning support open our taxation service or return to the LAINEXUS homepage. This hub sits beside our company structure pillar, Hong Kong Limited Company Structure, which covers directors, shares and records.

Frequently asked questions

What tax does a Hong Kong company pay?

A Hong Kong company pays profits tax on assessable profits that arise in or are derived from Hong Kong. Corporations pay 8.25% on the first HK$2 million and 16.5% on the rest, and one entity in a connected group can use the lower tier. Employers also file payroll returns and pay MPF.

Does Hong Kong tax foreign income?

Under the territorial principle, profits sourced outside Hong Kong are generally not taxed. Since 2023 the FSIE regime changes that for specified passive income of multinational group members when it is received in Hong Kong and no exception applies. Whether a profit is foreign-sourced is a question of fact that you must support.

When must a business register for tax?

Register the business within one month of starting, as the IRD requires. If you are chargeable to profits tax but have not received a return, notify the Commissioner within four months after the end of the basis period. Employers must also report new hires within three months using the correct form.

How long must tax records be kept?

Business records, including payroll records, must be kept for at least seven years. Failing to keep sufficient records can bring a fine of up to HK$100,000. For FSIE income the IRD asks for records for at least seven years after the transaction or after the income is received, whichever is later.

Do you need an accountant for Hong Kong tax?

The law does not require one for a small company, but most owners use one. Your accounts must support the amounts in the return, and positions on source, FSIE and deductions need evidence. A qualified adviser also checks the filing dates, which depend on your basis period and on notices from the IRD.

This article is general information, not tax or legal advice. Rates and rules were checked against IRD and MPFA pages on 15 October 2026 and can change. Confirm current requirements with the Inland Revenue Department before filing. Sources: IRD brief guide to taxes 2025/26, IRD two-tiered profits tax rates FAQ, IRD employer obligations.