How the rate works

Hong Kong profits tax is charged on assessable profits, not accounting profit: start from the audited accounts, add back non-deductible items (capital expenditure, fines, expenses unrelated to the business) and capital allowances, then apply the rate. Rates: 16.5% standard for corporations; under the two-tiered regime, 8.25% on the first HK$2 million of assessable profits and 16.5% on the balance, with only one entity in a connected group eligible to elect; unincorporated businesses are taxed at 15% (7.5% on the first HK$2 million). Scope: only Hong Kong-sourced profits are chargeable (territorial source principle, IRO s.14). Source is determined case by case under the operations test (DIPN 21) — what matters is where the substantive operations earning the profit are carried out, not where contracts are signed or payments received; offshore claims are available for foreign-sourced profits. Deductions and allowances: ordinary revenue expenses incurred in earning assessable profits are deductible; machinery and equipment enjoy a 60% initial allowance; qualifying R&D expenditure enjoys enhanced deduction (300% on the first HK$2 million, 200% thereafter); corporate losses may be carried forward indefinitely. Filing: the year of assessment runs from 1 April to 31 March, with tax assessed by reference to the accounting basis period; the BIR51 return, with audited accounts, is generally due within one month of issue, with provisional tax prepaid on current-year profits (deferral available on qualifying grounds). Hong Kong has no VAT or sales tax, no dividend withholding tax, and no general capital gains tax.