Company Tax in Hong Kong - A full guide with screenshots

The company tax system in Hong Kong (HK) is one of the most favorable in the world – we show you why.

TL;DR:

Here are the three different company tax categories you can fall into:

Category No.	Requirement	Tax rate
1	All net profit below 2 Million HK dollars	8.25%
2	All net profit more than 2 Million HK dollars	16.5%
3	The company is labeled as an offshore company by the tax department	0%

Below, we go in more depth on company tax in Hong Kong with citations and screenshots from the tax law books as we as certified Hong Kong accounts feel it is necessary to cite the source.

Introduction

This article goes through the company tax in Hong Kong.

Terminologies for this article:

company tax/profits tax (company profit): This is the tax on the profit a company has made in a year.
Net profit means revenue – business costs = net profit

What will you learn after reading this article?

This article helps you consider the different tax implications as a business owner with a (offshore) Hong Kong company.

1 – Company tax in Hong Kong: 2 company categories

There are two company categories you need to understand in Hong Kong:

Onshore companies (8.25% – 16.5% company tax in Hong Kong)
Offshore companies (0% company tax in Hong Kong)

Depending on which category you are labeled as will determine your company taxes in Hong Kong.

Important note:

By default, all incorporated companies in Hong Kong are declared onshore companies.

To become an offshore company, you need to fulfill certain requirements and actively apply for it. We discuss these requirements in section 3 of this article.

2 – Company tax in Hong Kong: Onshore company

A normal Hong Kong company is being taxed under the two-tier and flat company tax in Hong Kong:

Two-tier because there are two revenue brackets with different company tax rates in Hong Kong.
Flat because within those tax brackets, the tax rate will be the same regardless of the amount.

Let us look at this in practice:

1st tier: Your profit is between 0 and 2 Million HK Dollars

If your profit is between 0 and 2 Million HK dollars, an 8.25% company tax rate in Hong Kong is applied.

This is a flat tax rate, which means whether your profit is 1 HK dollars or 2 Million HK dollars both will be taxed at a rate of 8.25% (flat-rate)

2nd tier: Your profit is more than 2 Million HK Dollars

If your revenue is more than 2 Million HK dollars, a 16.5% flat tax rate is applied for any amount above 2 Million HK dollars.

Example:

Suppose your revenue is 3 Million HK dollars.

Then that means the first part (2 Million HK dollars) is taxed at 8.25% and the second part (1 Million HK dollars) is taxed at 16.5%. This means:

Taxes for 3 Million HK dollars = 2 Million HK dollars * 0.0825 + 1 Million dollars * 0.165

Note:

In the above screenshot taken from the government website of the Hong Kong tax department, you can see a slightly different two-tier tax rate (7.5% – 15%) for unincorporated businesses.

An unincorporated business in Hong Kong means that the company is not its own legal entity and the owner and the business owner are the same.

As accountants, we do not recommend this type of business because in case of any damages to your clients due to your services, you and your asset (money) can be claimed.

For incorporated businesses (limited liability), only the money within the company entity can be claimed, and this is less risky.

3 – Company tax in Hong Kong: Offshore Company

The Hong Kong Tax Department (IRD) only claims profit tax on profit from Hong Kong sources – this effectively means that any revenue from outside of Hong Kong will not be taxed.

The following screenshot is the relevant paragraph published by the Hong Kong Tax Department (IRD) from 2011. (source: IRD’s guide on territorial taxation)

Example:

Suppose you have a Hong Kong company and you run an IT service business.

You write your invoices for your IT clients through your Hong Kong company.

Your clients are based in Europe, e.g. Germany, UK and France – this means their company is incorporated in those countries.

By definition, these clients are from overseas and not from Hong Kong.

Thus, the revenue/profit comes from overseas and may pay 0% as an offshore company.

Important note: The 0% tax rate is not applied per default.

Note how we used the word “may” in every sentence.

This is to point out that the 0% offshore rule will not apply per default.

You have to actively apply for this to avoid paying this tax. After 3 years, the tax department reviews your application and verifies it.

What sounds easy in theory, becomes difficult in theory.

The IRD (Hong Kong’s tax department) has a list of 5 checkboxes to validate whether the 0% offshore label applies (see screenshot and source: IRD’s basic principles for determining source of profit)

This is why before you start working with us, we have a detailed look whether

you want the offshore label
how probable it is to receive it
it is a dealbreaker for you if it is not granted

For our clients, the offshore application is included within our yearly full services, so they do not have to handle communication with the IRD and avoid headaches.

Truth to be told:

Tax departments all over the world are a headache to talk to –

Your time is better spent on your business and family.

Get in touch with us to see whether we can also help you with your offshore label.

4 – Company tax in Hong Kong for mixed cases: Off – and onshore B2B clients

So, the big question is what happens if you have offshore (not in Hong Kong) and onshore (within Hong Kong) B2B clients at the same time?

In this case, we have two scenarios.

1 – You provide on-site workshops and sessions for Hong Kong clients

In case, you work on-site for the Hong Kong client by giving workshops etc., then that revenue made by that client will be taxed within the two-tier tax system (8.25 or 16.5% depending on the amount).

But all the other revenue sourced by offshore clients can still be labeled as offshore and thus can be taxed with 0%.

2 – Your delivery for the Hong Kong client is completely online

If your work does not require on-site sessions with the Hong Kong client, then it can still be labeled as an offshore revenue.

Of course, proper documentation is very important, but we keep track of these for our clients.

In case you like more information, feel free to book a call, and we discuss your particular scenario in more detail.

5 – Company tax in Hong Kong for mixed cases: Off – and onshore B2C clients

The situation becomes a bit more complicated for companies with B2C off – and onshore clients, for instance for an online store (e-commerce) with customers in the US and Hong Kong.

In this case, it cannot work as above.

The revenue sourced through Hong Kong customers has to be taxed with the two-tier system (no exception here).

But if not careful and all of that revenue is mixed, then you are running into the risk that even your US revenue is being taxed in Hong Kong.

So to overcome this, we usually recommend clients to open two Hong Kong companies:

one to source the revenue from Hong Kong customers (onshore and taxed at 8.25% to 16.5%)
one to source the revenue from the US customers (offshore and taxed at 0%)

How we do this in practice and how we can implement it for you specifically, is best discussed in a call with our certified and legal accountant, Raymond.

FAQ

1 – Is there company tax in Hong Kong?

For onshore businesses, yes (8.25% – 16.5%).

For offshore businesses, no (0%).

2 – What is the 2-tier tax in Hong Kong?

This means that for businesses with a profit up until 2 Million HK dollars, the tax rate is 8.25%.

For net profits above that 2 Million HK dollars, the tax rate is 16.5%.

3 – How can I have an offshore company in Hong Kong?

You first need to fulfill the criteria of an offshore company (revenue from overseas clients and no substance or employees in Hong Kong).

Then you need to apply and after 3 years you can officially be recognized as an offshore company and enjoy 0% legally.

4 – What if I have both Hong Kong and Non-Hong Kong customers?

If the Hong Kong customers are B2B clients, and you do not work on-site (workshops, etc.), then it can still go through as offshore revenue.

If not, only that revenue is taxed at 8.25 to 16.5%, but the rest of revenue sourced from outside of Hong Kong will go through as offshore revenue.

For B2C clients (e-commerce stores), it is advisable to have an e-commerce onshore company for Hong Kong customers and a Hong Kong e-commerce offshore company for overseas customers. This is explained in more detail above in section 5.

Company Tax in Hong Kong – A detailed look at laws released by Hong Kong’s tax departments (screenshots included)

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