Hong Kong Profits Tax: Deadlines, Rates & Filing Guide 2025/26

When the IRD sends you a profits tax return, here is exactly what to do — and what happens if you get it wrong.

What is profits tax?

Profits tax in Hong Kong is levied on the assessable profits of any person — corporate or individual — carrying on a trade, profession, or business in Hong Kong. The key phrase is "arising in or derived from Hong Kong." The territorial basis of taxation is one of the core features of the Hong Kong tax system: profits sourced outside Hong Kong are generally not taxable, even if the company is incorporated here.

The Inland Revenue Department (IRD) issues profits tax returns annually. For most companies, the assessment year runs from 1 April to 31 March (the government's financial year), but your company's own accounting period may differ — and the IRD will assess you based on profits from your accounting year that ends within the IRD assessment year.

Tax rates: two-tier system

Hong Kong introduced a two-tier profits tax system in 2018/19 to reduce the burden on smaller businesses. The rates currently in force:

Taxpayer type	First HKD 2 million of assessable profits	Remainder
Incorporated company	8.25%	16.5%
Unincorporated business / partnership / sole proprietorship	7.5%	15%

Important restriction: Only one entity within a corporate group can elect to apply the two-tier rates. If your company is part of a group, a connected entity election is required. Getting this wrong results in the standard flat rate (16.5%) applying to the full amount.

Filing deadlines

The IRD issues profits tax returns in bulk, typically in April of each year. The standard filing deadline depends on your company's accounting year-end date:

Accounting year-end	Standard filing deadline
31 March (or within 1 month before)	2 August (of the same year the return is issued)
30 November	31 January (of the following year)
Any other date	Typically within 1 month of return issue; extensions available via tax representative

If you are represented by a tax representative (typically a CPA firm or your bookkeeping service), they can usually negotiate a block extension that moves the deadline to November or January. This is common practice — most businesses never file in August because their representative is on the extended schedule.

First-time filers: Newly incorporated companies typically receive their first profits tax return 18 months after incorporation, covering the first accounting period. If you haven't received a return but have been operating for over 18 months, you may need to notify the IRD proactively.

Provisional profits tax

Hong Kong uses a "pay as you go" system for profits tax. After your first assessment, the IRD will charge provisional profits tax (PPT) for the following year, based on the prior year's assessable profits. The provisional amount is typically due in two instalments (roughly 75% and 25%) in January and April respectively.

You can apply to hold over provisional tax if you believe your current year's profits will be significantly lower than the prior year (generally, a reduction of 10% or more is expected). This application must be made before the due date for the provisional tax.

Common mistake: Founders who had a strong first profitable year are sometimes caught off guard when a large provisional tax bill arrives the following January. Budget for it before you distribute profits or assume cash is freely available.

Common deductions

The following expenses are generally deductible against assessable profits:

• Depreciation allowances: Plant and machinery, computer hardware, and qualifying intellectual property attract capital allowances rather than direct deductions. Rates vary by asset type (initial allowance 60%, annual allowance 10–30%).
• Salaries and wages: Employee costs are fully deductible, including employer MPF contributions.
• Rent: Premises used exclusively for business purposes are deductible. Where premises are partly personal (e.g., a home office), only the business proportion can be claimed.
• R&D expenditure: Qualifying research and development costs attract a 300% deduction for the first HKD 2 million and 200% thereafter under the enhanced R&D deduction introduced in 2018.
• Charitable donations: Donations to approved charitable institutions are deductible up to 35% of assessable profits.
• Bad debts: Specific bad debts that have been written off in the accounts are deductible if they arose from the business. General provisions are not.

Expenses that are not deductible include: private or domestic expenses, income tax itself, capital expenditure (though depreciation allowances apply), and costs of a non-business nature.

The audit requirement

All Hong Kong incorporated limited companies must have their annual accounts audited by a Hong Kong practising certified public accountant (CPA) and submit the audited financial statements with their profits tax return. There is no turnover threshold below which an audit is waived for limited companies — this is a common misconception.

The audit is separate from tax preparation. Your auditor reviews the financial statements; your tax agent (or bookkeeper) prepares the tax return using the audited figures. In practice, the same firm often handles both, but they are distinct services.

Timing implication: to file your tax return on time, your audit must be completed first. If your books are behind, the audit will be delayed, and the tax filing will be late. This is one of the most common reasons for late filing penalties among small businesses — not the tax itself, but the audit being unprepared.

Offshore income claims

Hong Kong's territorial tax basis means that profits sourced offshore — from services rendered outside Hong Kong, or from goods traded entirely outside Hong Kong — may be exempt from profits tax. However, this exemption is not automatic and must be specifically claimed and substantiated.

The IRD scrutinises offshore claims carefully. Supporting documentation typically includes contracts, correspondence showing where decisions were made, travel records, and evidence that the relevant services or transactions were performed outside Hong Kong. Weak documentation leads to rejection of the claim.

If a significant portion of your revenue comes from overseas clients or activities, an offshore claim review at the time of your first assessment is advisable. Retroactive claims can be difficult to support.

Penalties for late filing

Late filing of a profits tax return can result in:

• Penalty for late filing: The IRD can issue an estimated assessment and impose a penalty of up to 3x the tax assessed, plus a fixed fine. In practice, first-time late filers with a reasonable excuse typically receive a smaller penalty, but the IRD's tolerance has reduced in recent years.
• Prosecution: Persistent failure to file can result in prosecution in the magistrates' court. This is uncommon but not unprecedented for businesses that simply ignore correspondence.
• Compound interest on outstanding tax: Tax paid late accrues interest at a rate set by the IRD.

The most common scenario is receiving an estimated assessment (based on the IRD's estimate of your profits) that is higher than your actual profits. You must then object, file your return, and await re-assessment — a time-consuming process that delays resolution for months.

If you cannot file by the deadline, apply for an extension proactively. Extensions granted in advance are routine; extensions sought after the deadline has passed are harder to get and may not prevent a penalty.