Hong Kong SME Tax Guide: Profits Tax, Salaries Tax and Property Tax

At a glance

Rates, allowances, deadlines and penalties are governed by the Inland Revenue Ordinance (Cap. 112) and the IRD’s latest published guidance.

Profits tax: what the company earns

Two-tiered rates

One important restriction: among connected entities, only one may claim the two-tiered rates. With more than one company you have to nominate; if you do not, the IRD may decide. See the two-tiered rates.

Worked example — a company with assessable profits of HK$3,500,000:

Note it is charged on assessable profits in layers — not on turnover, and not at one rate across the whole amount. Full rules in the profits tax guide.

Salaries tax: employees, and owners who draw a salary

Progressive rates (on net chargeable income)

The standard rate became two-tiered from the year of assessment 2024/25: 15% on the first HK$5,000,000 of net total income and 16% above that. You pay the lower of the progressive calculation and the standard rate calculation.

Common allowances

Allowances can change with each Budget; the IRD’s published figures govern.

Employer obligations — the part owners most often miss:

IR56G deserves particular attention: before an employee leaves Hong Kong, the employer must withhold money owed to them until the IRD issues a letter of release.

Worth noting: an owner who draws a salary is reported on IR56B like any other employee, and MPF applies in the same way.

Property tax: only if you collect rent

Charged at 15% of the net assessable value:

Annual rent → less irrecoverable rent → less rates paid → less the 20% statutory allowance for repairs and outgoings → × 15%

Note that 20% is a fixed statutory rate — it has nothing to do with what you actually spent on repairs, and spending more does not increase it.

Where property is held by a company and used in the business, the treatment differs and should be assessed case by case.

When is everything due?

Profits tax

The codes follow your year end:

• Year end 1 April to 30 November → N (essentially no extension)
• Year end 31 December → D
• Year end 1 January to 31 March → M (the longest)

The actual extended dates are published by the IRD each year and are not fixed calendar dates.

The first bill also includes provisional tax. The assessment for the year plus provisional tax for the next, issued together. Provisional tax is set off the following year, but the cash flow impact is real — see what provisional tax is, and when it can be held over.

What is deductible?

The general principle: expenses incurred in the production of chargeable profits.

Not deductible: capital expenditure, private and domestic expenses, fines, the tax itself, and sums recoverable under insurance.

The six mistakes that come up most

1. Mixing personal and business expenses. The most common, and the hardest to fix after the fact — at year end nobody can tell which is which, the deduction is lost, and the audit is affected too. See how to keep the two apart.

2. Under-reporting income. Cash, electronic payments, and platform settlements booked net — all three are easy to miss. The IRD has several ways to cross-check, and beyond the tax there is additional tax on top.

3. No supporting documents. Whether a deduction survives depends on the paperwork behind it, kept for seven years.

4. Ignoring related-party pricing. Charges between your own companies need a commercial rationale; you cannot simply move the number up or down.

5. Not using loss carry-forward. Losses carry forward indefinitely against future profits of the same trade — but only if the loss year was accurately filed in the first place. See how loss carry-forward works.

6. Forgetting employer obligations. Hiring anyone creates the IR56 filing obligations, whether or not the company is profitable. See how to complete the employer’s return.

What happens if you file late or wrongly?

The estimated assessment is the practical sting — the IRD’s estimate is usually higher than the reality, and objecting means raising it within the time limit with the correct figures. If a query letter arrives before any of that, how you answer it shapes everything after.

The specific amounts and multiples are governed by the Inland Revenue Ordinance and the IRD’s latest published guidance.

What can you actually do about it?

1. Confirm the two-tiered nomination. Anyone with more than one company has to handle this actively.

2. Plan the salary and dividend mix. Hong Kong does not tax dividends, but director’s remuneration is deductible — so there is a calculation here, provided the arrangement is genuine. See salary or dividend for the owner.

3. Check the R&D super-deduction. If you qualify, the first HK$2,000,000 is deductible at 300%. Worth confirming eligibility early.

4. Time asset purchases. Some items are written off in full immediately, so buying either side of the year end changes which year gets the deduction.

5. Consider an offshore claim. Worth assessing if the key operations happen outside Hong Kong — but you have to substantiate it.

6. Keep the books monthly. Unglamorous but the most consequential: all five points above must be decided before the year ends. See monthly versus once a year. Once it is closed and you finally see the numbers, computing the tax is all that is left.

Common questions

When does a new company file?

The first return is usually issued around 18 months after incorporation, with a longer filing period. Even with no trading and no profit, a return that has been issued must be filed. See filing your first tax return.

Does a loss-making company still file?

Yes — and the loss year matters more than most, because that figure is the evidence for the relief you will claim later.

Does an SME have to use an accountant?

A company’s profits tax return must be filed with audited financial statements, and a statutory audit must be performed by a Hong Kong practising CPA — so that step cannot be done in-house. Bookkeeping itself can be. See doing your own books or outsourcing.

No employees — can I ignore salaries tax?

If you draw a salary from your own company, that is employment income and the company files an IR56B for you like anyone else. Drawing nothing is a different matter.

Does rent always attract property tax?

If you hold and let Hong Kong property personally, yes. Rental income held through a company and forming part of the business is treated differently and should be assessed case by case.

Want someone to run this year’s numbers?

Filing itself is not the hard part. The hard part is knowing roughly what you will earn before the year ends — because every arrangement worth making has to be decided before then.

We handle bookkeeping and tax preparation; the statutory audit is performed by a practising CPA.

Talk to us, or get started.

This article is general information and does not constitute tax advice. Rates, allowances, deadlines, deduction rules and penalties are governed by the Inland Revenue Ordinance (Cap. 112), the IRD’s Departmental Interpretation and Practice Notes and its latest published guidance.