Hong Kong profits tax: the two-tier system and offshore income claims

Hong Kong applies a territorial source principle: only profits arising in or derived from Hong Kong are chargeable to profits tax. This is often cited as an advantage for Hong Kong companies and is just as often misunderstood.

Two-tier profits tax

• First HK$2,000,000 of assessable profits for corporations: 8.25%
• Excess over HK$2,000,000: 16.5%
• Where there are connected entities, only one nominated entity may benefit from the two-tiered rates

Offshore claims are not automatic

If the company believes its profits are not sourced in Hong Kong, it must claim offshore status in the return and prepare evidence such as contracts, negotiation and execution locations, and logistics documents to respond to the Inland Revenue Department’s enquiries. Without robust evidence, the claim may be rejected.

File on time whenever a return is issued, regardless of activity or claims. Even a nil return requires accounting support.

Key timelines

A new company typically receives its first profits tax return about 18 months after incorporation. Thereafter, returns are issued around April each year. We maintain a tax calendar for clients and prepare audit and filings in advance.

This page summarises publicly available regulations for general reference only and does not constitute legal or tax advice. Rules in each jurisdiction may change at any time; please confirm the latest position with an Offshore Isle advisor.