Hong Kong Tax FAQs & Expert Guidance (2024/2025 & 2025/2026)

The Inland Revenue Department (IRD) automatically calculates your tax liability using both methods and charges you the lower amount. Method 1 (Progressive Rates) applies graduated rates of 2%, 6%, 10%, 14%, and 17% to your Net Chargeable Income, which is your gross income minus allowable deductions and personal allowances (e.g., Basic Allowance of HK$132,000, Married Person's Allowance of HK$264,000, and Child Allowance of HK$130,000). Method 2 (Standard Rate) applies a flat 15% (or two-tiered 15% on first HK$5M, 16% on excess) to your Net Total Income (gross income minus deductions, but without personal allowances). High earners whose progressive tax exceeds the standard rate calculation automatically pay the lower standard rate.

Under Section 8(1A)(b) of the Inland Revenue Ordinance, an individual who visits Hong Kong for not more than 60 days during a year of assessment is completely exempt from Hong Kong Salaries Tax on income derived from services rendered during those visits. Both arrival and departure days count as full days under IRD practice. This exemption applies strictly to visits: if you hold a Hong Kong employment contract or maintain permanent residence, the rule requires careful apportionment under Double Taxation Agreements.

Introduced to support SMEs, Hong Kong's two-tiered profits tax regime taxes the first HK$2,000,000 of assessable profits of qualifying corporations at a halved rate of 8.25%. Any assessable profits exceeding HK$2,000,000 are taxed at the standard corporate rate of 16.5%. For unincorporated businesses (partnerships and sole proprietorships), the two rates are 7.5% and 15%. Connected entities in a corporate group can only nominate one single entity to benefit from the reduced 8.25% bracket, preventing artificial group splitting.

Hong Kong does not tax worldwide corporate profits. Under Section 14 of the IRO, only profits arising in or derived from a trade, profession, or business carried on in Hong Kong are taxable. If a Hong Kong registered company conducts its profit-generating activities entirely outside Hong Kong (e.g., contracts negotiated and signed abroad, goods sourced and delivered abroad without passing through Hong Kong, and operations managed overseas), it can apply for an Offshore Profits Claim. If granted by the IRD, qualifying offshore profits are taxed at 0%. However, under the Foreign Source Income Exemption (FSIE) regime, passive income (interest, dividends, disposal gains) must satisfy economic substance requirements to remain exempt.