Hong Kong is a Special Administrative Region of China, located in East Asia on the southeastern coast of mainland China. The official languages are Chinese and English, and the national currency is the Hong Kong dollar (HKD). Hong Kong’s currency remains strictly pegged to the US dollar under the currency mechanism in place since 1983.
Hong Kong is known as one of Asia’s leading financial and business hubs. The jurisdiction offers a range of special programs and initiatives to support startups and technology companies — from government funding and incubation programs to accelerators, tax incentives, and support for international market entry.
Taxes in Hong Kong are considered among the simplest and most liberal in the world. The tax system is based on the territorial principle of taxation, characterized by low rates and minimal administrative burden.
Corporate Tax and Taxation in Hong Kong
A key element on which taxation in Hong Kong is based is the territorial principle. This means that only income sourced within Hong Kong is subject to taxation.
If a company earns profits outside Hong Kong, such income is not taxable in this jurisdiction. As a result, the effective corporate tax rate in Hong Kong can be 0%. This rule also applies to digital businesses, provided that the income is not considered to have a Hong Kong source.
Conditions for Applying the Territorial Principle (Offshore Income)
To confirm that income does not have a source in Hong Kong, a company must demonstrate the actual absence of business activity within the jurisdiction. In particular:
- The company’s management and employees must be located outside Hong Kong; visits by the owner or staff are allowed but must be occasional and short-term;
- All key business activities related to negotiating and concluding contracts with clients and suppliers must take place outside Hong Kong;
- The company’s products must not be present in Hong Kong, and the company itself must not provide services or supply goods in the region.
At the same time, the company may use the services of local contractors, including accounting, legal, or administrative services, without losing the right to apply the territorial principle.
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Taxation of income sourced in Hong Kong
Income deemed to have a source in Hong Kong is subject to corporate profits tax under a progressive model. The amount of tax depends on the company’s taxable profits.
- 8.25% on the first HKD 2 million of profits (≈ €220,000)
- 16.5% on the amount exceeding this threshold
Hong Kong does not impose taxes on dividends, reinvested profits, or capital gains, nor does it have VAT/GST or any hidden tax charges.
Reporting and tax administration in Hong Kong
The tax year in Hong Kong is fixed and runs from April 1 to March 31. At the same time, companies are allowed to determine their own financial year. Regardless of the company’s financial year-end date, the tax authorities attribute the income earned to the standard Hong Kong tax year.
After submitting the tax return, the Hong Kong tax authority issues a “Notice of Assessment” specifying the exact amount and payment dates. In case of late payment, the tax authority may impose a penalty tax, which can equal or even triple the amount of unpaid tax.
Financial Year-End Date | Tax Return Submission Deadline |
April 1 – November 30 | May 2 |
December 1 – December 31 | August 15 |
January 1 – March 31 | November 15 |
Tax Payment Due Date |
According to the “Notice of Assessment,” usually between November of the year the return is issued and April of the following year |
How are employees taxed in Hong Kong?
When paying salaries to a Hong Kong tax resident, a company is required to withhold the Salaries Tax — the main personal income tax. This tax is calculated either on a progressive scale or at a fixed rate of 15%, depending on which option is more beneficial for the taxpayer.
- 2% on the first HKD 50,000
- 6% on the next HKD 50,000
- 10% on the next HKD 50,000
- 14% on the next HKD 50,000
- 17% on the remaining amount
There are no mandatory contributions to state social funds in Hong Kong. No pension tax, medical tax, or any other compulsory “insurance” charges are levied in favor of the government. The only possible additional payments may be contributions to private pension schemes.
Tax Audits in Hong Kong
The Hong Kong (Inland Revenue Department, IRD) carefully reviews each company’s request to confirm offshore status and the right to apply a zero tax rate. Such audits are usually conducted in the form of a written inquiry containing a list of standard questions, including:
- Where the company’s clients are located;
- Where negotiations take place;
- Where contracts are signed;
- Where the directors actually work;
- Whether the company has an office in Hong Kong;
- Who performs the operational work and where these individuals are located.
As part of an in-depth review, the IRD may also require the submission of bank statements, contracts with clients, invoices, confirmations of business communications, and other documents that prove activities are conducted outside Hong Kong.
the tax authority either confirms the company’s offshore status or revokes it, which directly affects the application of the zero corporate profits tax rate.
Based on the results of the review, the tax authority either confirms the company’s offshore status or revokes it, which directly affects the application of the zero corporate profits tax rate.
Thus, taxes in Hong Kong are rightly considered among the most structured and efficient in the world for both businesses and individuals. Clearly regulated rules, moderate tax rates, and the territorial principle of taxation, complemented by special regimes for startups and innovative projects, create a competitive environment for local and international companies.
At the same time, even within such a favorable tax system, it is critically important to maintain tax discipline: submitting reports on time, keeping accurate records, and correctly applying tax incentives. To minimize risks, properly determine the source of income, and fully leverage the opportunities of the jurisdiction, it is advisable to engage specialized professionals.
To properly build a tax model, confirm the right to apply the territorial principle of taxation, and prepare for potential IRD audits, consult a WoBorders tax expert. We will help assess your business structure and support you at every stage, from company registration in Hong Kong to accounting and audit.
