Is it crucial in Hong Kong for profit tax returns? Getting your profit tax return right in Hong Kong is crucial for your business. Hong Kong is a popular hub for many companies because of its simple tax system and smart laws. But missing deadlines or making mistakes can cost you penalties or more audits. These solutions help businesses stay organised and compliant with minimal fuss. Choosing the right software means less stress, more accuracy, and timely submissions. Luckily, cloud accounting changes the game.
This guide comprehensively walks you through every step from understanding the rules to submitting your return confidently. Whether you’re new or experienced, knowing the ins and outs can make compliance easy and save money.
Table of Contents
Understanding Hong Kong Profits Tax Requirements
Usually in Hong Kong every tax year occurs during the start of April, therefore the businesses be ready with the report of their income. It is also possible to apply for exemptions and account for everything they’ve got in their business.
What is Profit Tax Returns in Hong Kong?
A profits tax return is compulsory to provide for Hong Kong government which is submitted in IRD (Inland Revenue Department). The income earned in or from Hong Kong are the taxes in Hong Kong. Its tax system is based on the territorial principle, meaning only profits sourced locally are taxed.
The main governing body for taxes here is the Inland Revenue Department (IRD). Businesses pay taxes mainly on profits from their operations. Other taxes, like payroll or property taxes, also exist but are less relevant for-profit tax filing.
Understanding these declaration reports of assessable profits, or adjusted losses, within a specified accounting period the profit tax returns are displayed. It determines the business’s Profit Tax Liability.
Profit Tax Rates
In Hong Kong, corporations have two options of profit tax namely:
- Single tier: Under this, corporations are taxed for 16.5% assessable profits and for unincorporated businesses it is 15%.
- Two tiers: If the tax rate if is first HK$2million of assessable profits is lowered for corporations and unincorporated businesses.
For SMEs the two-tier tax rate systems incline to decline the tax burden of paying tax for most of them. And for corporations of having tax rate HK$2milion must pay 8.25% of tax rate and the remaining profits will be taxed as the existing rate of 16.5%. Whereas for unincorporated businesses the for the first HK$2million must be taxed of 7.5%, and the remaining profits is taxed with the existing rate of 15% tax.
To be noted if you are a part of a group of connected entities, only one group can get the benefit of two-tier tax system. For this purpose, you have to focus on which entity you will benefit on and election accordingly.
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Basis Period
Profits income tax in Hong Kong is subjected to determined in a year of assessment (YA). For example, a YA can be commenced on 1 April 2024 and end on 31 March 2025, and is referred as YA 2024-25.
Know more about the accounting standards of Hong Kong for your businesses.
Filing Due Date
The Inland Revenue Department (IRD) will issue the profit tax returns of Hong Kong to companies every first working day of April every year. The standard deadline of filing profit tax for companies is one month from the date the tax returns are issued. If at all corporations can get considerations for filing their returns at later date however the provided conditions are met.
As to encourage electronic filing, an extra month extension can be granted upon application. To be filed as per electronic filing the below table gives you the clear extension.
In fact, taxpayers can file profit tax returns in Hong Kong without much complication; however, they still need to plan carefully. Moreover, for newly registered businesses, the IRD sends the profit tax return 18 months after the business begins operations or after the date of incorporation.
While you are in need to file a set of returns you have to keep in mind with the following:
- Specific profit tax return form as issued by the IRD
- Supplementary form issued by the IRD for your tax and financial data
- Audited financial statements (i.e. audit reports) related to basis period
- Tax computation knowing how the amount of assessable profits arrived at
- Other documents and information specified
Learn more about the key accounting practices in Hong Kong for your businesses.
Hong Kong Profit tax (Corporate Tax) systems and its Key features
Unlike global taxation models, Hong Kong’s territorial principle which is the foundation stands apart with its tax system. It offers many benefits for companies. The two-tier system of HK creates immediate savings of profits tax rate which is low 8.25% on the first HKD 2 million profits, then with amounts beyond, tax is 16.5% afterward.
Companies who deal cross border operations must note: Hong Kong has implemented OECD’s global minimum tax (pillar two) for fiscal years starting from 1 January 2025. It affects diversely to the multinational groups consolidated with revenue of approximate EUR 750 million.
Even though capital gains remain untaxed, considering significant advantage over many jurisdictions. However, the capital gains and trading profits require more careful analysis as the latter face full taxation.
Types of Hong Kong Profit Tax
Hong Kong has one of the tax-friendly system economies from businesses in worldwide. It is a place where people finding a competitive destination for Foreign Direct Investment (FDI) and establishing an investment platform for global businesses looking to invest in PRC (Public Republic of China).
Hong Kong maintains a simple and stable tax jurisdiction and imposes four types of taxes, as shown in the chart below.
Most importantly, the tax jurisdiction of Hong Kong does not levy tax on the following:
- Sales tax or VAT
- Withholding tax
- Capital gains tax
- Tax on dividends
- Estate Tax
Besides, authorities have designated Hong Kong as the only place with free port status and easy customs procedures.
Also refer about the step-by-step guide for accounting system and its process.
China vs Hong Kong : A Direct Comparison of Two System
Corporate Income Tax
Considering about between China and Hong Kong, the first comes is the corporate income tax (CIT) in China is about 25% is the standard tax rate. However, in Hong Kong the assessable profit tax rate is 16.5%.
While in Hong Kong, as mentioned earlier, the government does not impose a turnover tax and imposes customs duty only on a limited range of imports.
Individual Income Tax
The tax authorities apply individual income tax (IIT) based on progressive rates between 3% and 45%, depending on the income and applicable tax bracket. Service or freelance income is taxable at the rate of 20% of income for RMB 20,000 or below ranging up to 40% to respective income bracket. Under the provision of freelancing and services of the income generated can be of 80%, exempted of about 20% for business expenses.
Compared to Hong Kong, taxpayers calculate IIT either using progressive rates between 2% and 17% or a flat rate of 15%. They can also claim personal deductions on other non-related additional income.
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Key Takeaways
In fact, taxpayers can file profit tax returns in Hong Kong without much complication; however, they still need to plan carefully. Know your deadlines, gather accurate reports, and seek expert help when needed. Staying compliant not only avoids penalties but can also help you reduce your tax bill.
Keeping abreast of changes in the law ensures your business keeps growing strong. Prepare early, review carefully, and file confidently to make the process smooth and stress-free. Why wait? Contact our professionals today and book a free slot.
