Taxation in Hong Kong
Three taxes, no VAT, no capital gains tax — and two arithmetics for the expatriate package
Hong Kong has no general income tax. It has three schedules — profits tax, salaries tax, property tax — and income that falls into none of them is not taxed, even when it arises here. That single structural fact explains more of what follows than any rate does. What has changed, and changed sharply, is the position of large groups: since 1 January 2025 a global minimum tax of 15 % applies to them, and it neutralises much of what the ordinary regime gives.
The company
| Tax | Rate, and what governs it |
|---|---|
| Profits tax — two-tiered | 8.25 % on the first HK$2,000,000 of assessable profits, 16.5 % above. Unincorporated businesses: 7.5 % and 15 %. Elected in the return, on Supplementary Form S1. |
| The group restriction | Among connected entities — more than 50 % common ownership or control — only one may elect the two-tiered rates in a given year of assessment. The saving is capped at HK$165,000 a year for the whole group. |
| Territorial basis | Only profits arising in or derived from Hong Kong are charged. Offshore treatment is claimed, examined and granted — never automatic. The foreign-sourced income exemption regime, extended on 1 January 2024 to all disposal gains, requires economic substance here. |
| Withholding | None on dividends, none on interest. Royalties to non-residents are the exception: an effective 4.95 % for a corporation, 16.5 % where the payee is an associate and the intellectual property was once owned in Hong Kong. |
What else the company pays
| Item | Rate, and what governs it |
|---|---|
| R&D deduction | 300 % on the first HK$2m of qualifying type B expenditure, 200 % above, with no cap. |
| Capital allowances | Plant and machinery: 60 % initial allowance, then 10 / 20 / 30 % annually. Full deduction in the year for plant used in R&D and for environmental protection facilities. |
| Stamp duty | 0.1 % from each side on share transfers. The intra-group relief threshold was relaxed from 90 % to 75 % on 25 February 2026. |
| Business registration | Fee set in the Budget each February; the levy of HK$150 was restored on 1 April 2026, with no waiver for 2026-27. |
No value added tax and no sales tax. No tax on capital gains, subject to requalification where the facts show trading. No withholding on dividends, and no tax on dividends received. No estate duty since 11 February 2006. No wealth tax, no gift tax. No social contributions beyond the Mandatory Provident Fund.
Since 1 January 2024 a safe harbour secures the capital treatment of disposal gains on equity held at 15 % or more for at least 24 months. It is the first piece of genuine certainty Hong Kong has offered a holding company, and it is worth using deliberately.
A worked example — a company with HK$3m of assessable profits
| Base | Rate | Tax | |
|---|---|---|---|
| First tier | 2,000,000 | 8.25 % | 165,000 |
| Second tier | 1,000,000 | 16.5 % | 165,000 |
| Profits tax due | 3,000,000 | — | 330,000 |
| Effective rate 11.00 %. Without the election — because another group entity has taken it — the tax would be HK$495,000, an effective 16.5 %: the election is worth HK$165,000. Inside a group above €750m, top-up tax of (15 % − 11 %) × 3,000,000 = HK$120,000 would be due before the substance-based exclusion, and the election ceases to be worth anything. | |||
The Minimum Tax for MNE Groups Ordinance, enacted 6 June 2025 with effect for accounting periods from 1 January 2025, applies an income inclusion rule and a Hong Kong minimum top-up tax at 15 % to groups with consolidated revenue of €750 million or more.
The consequence is arithmetical. A company paying an effective 11 % under the two-tiered regime, inside such a group, owes the difference up to 15 % as top-up tax. The two-tiered rate, the concessionary regimes and much of the offshore claim are economically neutralised for groups above the threshold — and remain fully valuable below it. Which side of €750m the group sits on is now the first question, not the last.
The individual — two calculations, the lower one wins
Salaries tax is computed twice and charged at the lower figure. The taxpayer does not choose; the Revenue applies whichever is more favourable.
| Method | Base | Rates |
|---|---|---|
| Progressive | Net chargeable income — income less deductions and allowances | 2 % / 6 % / 10 % / 14 % on the first HK$200,000 in bands of 50,000, then 17 % |
| Standard rate | Net income — income less deductions, allowances not deducted | 15 % to HK$5,000,000 of net income, 16 % above |
The standard rate is not a reduced rate: it applies to a wider base and works as a ceiling. It only becomes the binding calculation at high income, and the crossover depends on the taxpayer’s own allowances — for the family in the example below, at about HK$5.7m of net income.
| Allowance — year of assessment 2026/27 | 2024/25 & 2025/26 | 2026/27 |
|---|---|---|
| Basic | 132,000 | 145,000 |
| Married person | 264,000 | 290,000 |
| Child, each of the first nine | 130,000 | 140,000 |
| Additional child, year of birth | 130,000 | 140,000, now for two years |
| Dependent parent or grandparent, 60 and over | 50,000 | 55,000 |
| Elderly residential care expenses (deduction) | 100,000 | 110,000 |
Deductions sit alongside: mandatory MPF contributions capped at HK$18,000, self-education at 100,000, home loan interest or domestic rents at 100,000 (not both, and 20,000 more for the parents of a first child born on or after 25 October 2023), voluntary health insurance premiums at 8,000 per insured person, and a combined 60,000 for deferred annuities and voluntary MPF contributions — a shared ceiling, routinely double-counted.
A worked example — an expatriate on HK$1.8m, married, two children
| HK$ | |
|---|---|
| Employment income | 1,800,000 |
| Less mandatory MPF contributions | (18,000) |
| Net income — base of the standard rate | 1,782,000 |
| Less married person’s allowance and two child allowances | (570,000) |
| Net chargeable income — base of the progressive scale | 1,212,000 |
| Progressive: 16,000 on the first 200,000, then 17 % of 1,012,000 | 188,040 |
| Standard rate: 15 % of 1,782,000 | 267,300 |
| Salaries tax due — the lower | 188,040 · 10.45 % |
Where the employer provides accommodation, or reimburses rent under a controlled arrangement, the benefit is not taxed on its cost but on a notional rental value of 10 % of the remaining income from that employer. A cash housing allowance is taxed in full.
Same employer cost of HK$1.8m, three structures:
| Package | Salaries tax | Effective |
|---|---|---|
| All cash, 1,800,000 | 188,040 | 10.45 % |
| 1,500,000 plus a cash housing allowance of 300,000 | 188,040 | 10.45 % |
| 1,500,000 plus accommodation provided, rent 300,000 | 162,540 | 9.03 % |
The first two are identical: a housing allowance paid in cash is worth nothing in tax. The third saves HK$25,500 a year — the 17 % marginal rate on the HK$150,000 by which the notional value falls short of the real rent. Two conditions, and both are formal: the lease must be in the employer’s name or vetted by it, with receipts and reimbursement against evidence, and the benefit must be reported as accommodation provided on the IR56B. And the employee loses the domestic rents deduction, worth up to HK$17,000 — so the net gain here is nearer HK$8,500 than 25,500. Most presentations omit that.
Where the employment is sourced
Salaries tax follows the source of the employment, not the residence of the employee. A Hong Kong employment — contract negotiated and enforceable here, employer resident here, remuneration paid here — is taxed on the whole income, with relief only for services rendered entirely outside Hong Kong. A non-Hong Kong employment is taxed by time apportionment on days present. Below 60 days of presence in the year of assessment, employment income escapes salaries tax altogether. The distinction is worth settling in the contract rather than in a later enquiry.
The employer’s obligations
Notify the Revenue within three months of employing a person likely to be chargeable. Enrol the employee in a mandatory provident fund scheme within the first 60 days, and contribute 5 % of relevant income, capped at HK$1,500 a month from each side. Take out employees’ compensation insurance from the first employee, without exception. Since 1 May 2025 accrued MPF contributions can no longer be set against severance or long service payments — the first structural rise in the cost of employment here since 2000, and one to provide for.
How we help
We settle the first accounting reference period against the block extension scheme rather than letting it default, and we decide the group’s two-tiered election deliberately — it can only be used once. We prepare the offshore claim, where one is available, as a file rather than as an assertion, and we say when it is not available. We structure the expatriate package around the accommodation rule, with the documentation the Revenue asks for, and we cost the domestic rents deduction that is given up. And we ask the €750m question first: above that line, the ordinary Hong Kong advantages are already spent.