01
Two-tier tax rate: Only 8.251 TP3T on the first 2 million
Hong Kong follows the territorial source principle for taxation and levies profits tax only on profits arising in Hong Kong. For the 2025–2026 fiscal year, the tax rate for the first HK$2 million of assessable profits is 8.25%, and 16.5% for amounts exceeding that threshold.
This means that a Hong Kong company with an annual profit of 3 million HKD would pay 165,000 HKD in taxes on the first 2 million HKD at a rate of 8.251 TP3T, and another 165,000 HKD on the remaining 1 million HKD at a rate of 16.51 TP3T, for a total of 330,000 HKD. Without the two-tier tax rate, the entire amount would be taxed at 16.5%, resulting in a tax liability of HK$495,000—a direct savings of HK$165,000.
It is important to note that only one affiliated company within the same group may benefit from the two-tier tax system. If there are multiple Hong Kong companies within the group, it is necessary to plan in advance which one will ‘secure the spot.’
02
Offshore Exemptions: A Key Advantage for Cross-Border Sellers
If your Hong Kong company conducts all its business operations, signs all contracts, and settles all payments outside of Hong Kong—and has not established a physical office in Hong Kong, does not employ local staff, and does not conduct transactions with local Hong Kong clients—you may apply for an offshore profit exemption.
Once approved, offshore profits are exempt from profits tax. This is one of the greatest tax advantages for Hong Kong companies engaged in cross-border trade.
However, in 2026, the tax authority significantly tightened its review of offshore exemptions. When submitting an application, applicants are required to provide detailed business descriptions, contracts, logistics documents, and proof of the locations of upstream and downstream partners. The tax authority may issue an inquiry letter within 1 to 3 months, requesting additional materials.
03
The End of Zero-Declaration Filings: Audit Reports Are Now a Must-Have
As of 2026, the Hong Kong Inland Revenue Department has completely eliminated the zero-return filing option. Even if a company is not actively operating, it must engage a licensed Hong Kong accountant to issue an “Audit Report on Non-Operational Activities” and cannot directly file a zero return.
Tax returns filed without an audit report will be deemed false by the tax authorities, resulting in a fine of up to three times the amount of tax due, and directors may face criminal liability for up to three years.
If you’re facing a similar situation—unsure about filing your Hong Kong corporate income tax return or unsure how to apply for an offshore tax exemption—feel free to scan the QR code to contact Qicaiying’s online customer service (WeChat/Phone: 18620388671). We’ll connect you with a licensed accountant to handle your audit and tax filing needs all in one place.
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