2025/26 Tax Reduction: 100% Waiver Capped at HK$3,000

At a glance

The reduction’s scope, cap and mechanics follow the IRD’s official announcements.

What exactly is being reduced?

The Budget proposed a 100% reduction of salaries tax, tax under personal assessment and profits tax for the 2025/26 year of assessment, capped at HK$3,000 per case. The legislation has since passed the Legislative Council and was gazetted in May 2026 — no longer a proposal, but a settled arrangement.

What counts as a “case”? For salaries tax, each taxpayer is one case; a couple under joint assessment counts as one case with a combined cap of HK$3,000. For profits tax, each business is one case. And if you pay both salaries tax and profits tax — an employee who also runs a sole-proprietorship business, say — each side carries its own cap; you do not choose between them.

Who benefits? Only those with tax to pay

The reduction is not a cash handout; it comes off your tax bill. So the first precondition: you must have tax payable. The 2025/26 basic allowance for a single person is HK$132,000 — anyone whose income sits within allowances and deductions pays no tax anyway, and the reduction changes nothing for them.

How to read the HK$3,000 cap — two scenarios:

• Tax payable HK$2,000: below the cap — fully waived, pay HK$0
• Tax payable HK$10,000: only HK$3,000 comes off, still pay HK$7,000

So taxpayers currently paying under HK$3,000 pay nothing this year; heavier taxpayers save a flat HK$3,000 — not a percentage.

No application needed: it lands automatically at assessment

The reduction requires no application of any kind. Simply file your 2025/26 return as usual — BIR60 for individuals, the profits tax return for companies — and the IRD applies the reduction at assessment; the figure appears directly on the notice of assessment.

One timing point to watch: the reduction applies only to the 2025/26 final assessment, not to provisional tax. Provisional tax you have already paid for 2025/26 is not refunded straight away — it is first applied against the final liability, and the reduction shows up at that step. The same demand note normally also collects provisional tax for 2026/27, computed with no reduction — so the bill is not simply HK$3,000 lighter. Read the demand note with that in mind rather than suspecting a miscalculation.

Versus last year: the cap doubles

The percentage is identical in both years; the difference is the cap, doubled from HK$1,500 to HK$3,000. For people paying a few hundred to a thousand-odd dollars of tax, both years are effectively a full waiver; for taxpayers and businesses paying five figures, the genuine extra saving this time is HK$1,500.

Worked examples: two salary levels

Single, basic allowance only (for the full computation method see the salaries tax basics guide):

Example 1: HK$18,000 a month

Annual income                       HK$216,000
− Mandatory MPF contributions        HK$10,800
− Basic allowance                   HK$132,000
= Net chargeable income              HK$73,200

Tax: first HK$50,000 × 2% + remaining HK$23,200 × 6% = HK$2,392
− Reduction (HK$2,392 < HK$3,000 cap — fully waived)
= Tax payable HK$0

Example 2: HK$40,000 a month

Annual income                       HK$480,000
− Mandatory MPF contributions        HK$18,000 (annual cap)
− Basic allowance                   HK$132,000
= Net chargeable income             HK$330,000

Tax (progressive rates)              HK$38,100
− Reduction (capped at HK$3,000)
= Tax payable HK$35,100

Example 1’s bill is wiped to zero; example 2 saves the full HK$3,000 cap. Notice the pattern: for light tax bills the reduction is a full waiver; for heavy ones it is a fixed discount — real tax saving still comes from claiming every allowance and deduction in full.

The owner’s angle: relief on both sides

An SME owner benefits twice this round:

• Company side: 100% off profits tax, capped at HK$3,000 per business (for how profits tax and the two-tiered rates work, see the profits tax guide)
• Personal side: the salary you draw from your own company earns its own 100% reduction of salaries tax, separately capped at HK$3,000

In other words, with the owner’s payroll arrangement set up well, both tax bills take a cut this year. Joint or separate assessment for a married couple, and how much salary is tax-efficient to draw — those decisions, taken together with the reduction, make up the complete answer.

How we can help

AIcountant provides one-stop support for Hong Kong SME owners — profits tax filing, accounts and audit arrangements, employer’s remuneration returns, plus the tax efficiency of the owner’s own payroll, with no reduction, allowance or deduction left unclaimed. Not sure where you stand? Talk to us.

This article is general information and does not constitute tax advice. The reduction’s scope, cap and implementation are governed by the enacted legislation and the IRD’s official announcements for the relevant year of assessment.