Hong Kong Profits Tax for a New Company: Two-Tier Rate, Your First Return & What’s Actually Taxable (2026 Update)
A new Hong Kong company pays profits tax on a two-tier scale: a corporation is charged 8.25% on its first HK$2 million of assessable profits and 16.5% on profits above that — so HK$3 million of profit means roughly HK$330,000 in tax (HK$165,000 + HK$165,000). Tax applies only to profits arising in or derived from Hong Kong, under the territorial-source basis; genuinely offshore profits may be exempt but must be claimed and evidenced. The IRD issues a new company’s first Profits Tax Return (BIR51) about 18 months after incorporation, and the normal filing time is one month from the date of issue, with the binding compliance date printed on page 1. A limited company files together with audited accounts and a tax computation. If your company is part of a group, watch the connected-entity rule — only one entity may use the 8.25% rate.
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Last updated: May 2026
Hong Kong Profits Tax for a New Company — 6 Key Points
- Two-tier rate: a corporation pays 8.25% on its first HK$2 million of assessable profits and 16.5% on everything above that.
- Worked example: HK$3 million of assessable profits = HK$165,000 (first HK$2M) + HK$165,000 (next HK$1M) = HK$330,000 total.
- Territorial source: only profits arising in or derived from Hong Kong are taxable — genuinely offshore profits may be exempt.
- First return timing: the IRD issues a new company’s first Profits Tax Return (BIR51) about 18 months after incorporation.
- Filing window: the normal time to file is 1 month from the date of issue — always read the compliance date printed on page 1 of your return.
- Connected-entity trap: only ONE company in a connected group may be nominated for the 8.25% rate — a new subsidiary of a larger group may not get it.
A new Hong Kong company pays profits tax on a two-tier scale: a corporation is charged 8.25% on the first HK$2 million of assessable profits and 16.5% on the balance, but only on profits that are sourced in Hong Kong. Understanding hong kong profits tax for a new company comes down to three things: how the two-tier rate actually works, when your first Profits Tax Return arrives (typically about 18 months after incorporation), and what counts as taxable under Hong Kong’s territorial-source basis. Get those three right and your first filing is straightforward; get them wrong and you risk over-paying, mis-claiming offshore status, or missing a deadline.
PAT CPA’s practical observation is: most first-time company owners worry about the rate, but the costly mistakes are almost always about source and timing — assuming offshore profits are automatically exempt, or not realising the first return covers a longer-than-12-month period.
Who is this guide for?
This article is written for people dealing with this tax for the first time:
- New company owners — local founders and overseas investors who have just set up and want to know what they will actually pay.
- Foreign and non-resident directors — those who have just used our guide to set up your Hong Kong company and now need the tax picture.
- Finance staff at young SMEs — anyone preparing for the very first Profits Tax Return and audit cycle.
If you instead want the full year-round compliance calendar (annual return, BR renewal, audit, employer’s return), see our dedicated guide referenced in annual compliance for Hong Kong companies. This article stays focused on profits tax itself.
How does Hong Kong profits tax work for a new company?
Hong Kong applies a two-tier profits tax rate designed to keep the burden light on smaller profits. For a company (corporation), the rate is split at the HK$2 million mark:
| Assessable profits band | Corporation rate | Tax on that band |
|---|---|---|
| First HK$2,000,000 | 8.25% | up to HK$165,000 |
| Amount above HK$2,000,000 | 16.5% | 16.5% of the excess |
A simple worked example shows the hong kong two-tier profits tax rate in action. Suppose your new company has HK$3 million of assessable profits:
- First HK$2,000,000 × 8.25% = HK$165,000
- Remaining HK$1,000,000 × 16.5% = HK$165,000
- Total profits tax = HK$330,000
The lower tier is worth up to about HK$165,000 a year in tax savings compared with charging the whole amount at 16.5%, so it matters most to growing companies sitting near the threshold.
Assessable profits ≠ accounting profit. The rate applies to your assessable profits — your audited accounting profit after adding back non-deductible items and subtracting allowable deductions and depreciation allowances. That is why the tax computation is prepared alongside your audited accounts.
When might a new company NOT get the 8.25% rate?
The two-tier benefit is not automatic for every company in a group. Where a company has one or more connected entities at the end of its basis period, only one of them may be nominated to enjoy the two-tier rates for that year — the rest pay a flat 16.5%.
This is the single most common surprise for a new company that is part of a larger structure. If you have set up a Hong Kong subsidiary of an overseas parent, or you already run another Hong Kong company that uses the lower tier, your new company may have to be charged at 16.5% from its first dollar of profit. This is a planning decision to make before the year-end, not after.
Do not split one genuine business into several companies purely to multiply the HK$2 million lower-tier band. The IRD treats artificial fragmentation as tax avoidance, and the connected-entity rule exists precisely to stop it.
What is actually taxable? Hong Kong’s territorial-source basis
This is the part newcomers most often get wrong. Hong Kong taxes on a territorial-source basis: only profits arising in or derived from Hong Kong are subject to profits tax. Profits genuinely sourced outside Hong Kong may be exempt — but exemption is never automatic.
Two points matter for a new company asking what is taxable under hong kong profits tax:
- Residence is irrelevant to liability. Profits tax applies to anyone carrying on a trade, profession or business in Hong Kong, whether the owners are residents or not. There is no separate resident/non-resident rate.
- Offshore status must be claimed and proven. If you believe your profits are offshore, you make an offshore claim in the return and must support it with contracts, correspondence, and evidence of where the profit-generating activities took place. The IRD reviews these claims closely and the process can take several months.
Common myth: “My customers are all overseas, so I owe no Hong Kong tax.” Where the income is sourced depends on where the operations that earned it were carried out — not simply where the customer sits. Treating offshore status as a default rather than a claim is one of the costliest first-year errors.
When does a new Hong Kong company pay tax — and when does the first return arrive?
A newly incorporated company does not file immediately. The standard sequence is:
- ~18 months after incorporation: the IRD issues your first Profits Tax Return. Because it covers the period from incorporation, this first return often spans more than 12 months.
- Prepare audited accounts + tax computation: a company must have its financial statements audited by a Hong Kong CPA, and a tax computation is prepared to arrive at assessable profits.
- File within the time stated: the normal filing time is 1 month from the date of issue. The binding date is the compliance date printed on page 1 of the return — for a first return this is usually set later than for subsequent annual returns, so check it carefully.
- Pay the assessment: the IRD raises an assessment, which typically includes provisional profits tax for the following year.
For limited companies the return is BIR51 (Profits Tax Return — Corporations). It must be filed together with the audited financial statements and the tax computation — which is why your audit report and your profits tax return are prepared as one exercise.
From the second year onward, the IRD issues Profits Tax Returns in bulk on the first working day of April each year, and the filing deadline depends on your accounting year-end. For the full annual cycle, refer to our annual compliance guide rather than repeating it here.
What about filing extensions?
If you appoint a tax representative, your company can use the IRD’s Block Extension Scheme, which extends the filing deadline according to your accounting date code. For the current 2025/26 cycle the extended dates are:
| Accounting date code | Accounting year-end | Extended due date | E-filing extended due date |
|---|---|---|---|
| N code | 1 Apr – 30 Nov | No extension | 4 June 2026 |
| D code | 1 Dec – 31 Dec | 17 August 2026 | 17 September 2026 |
| M code | 1 Jan – 31 Mar | 16 November 2026 | 16 December 2026 |
| M code (current-year loss) | 1 Jan – 31 Mar | 1 February 2027 | 1 February 2027 |
Without a tax representative you generally get no block extension and must file within 1 month of issue. Choosing your accounting year-end thoughtfully — many companies pick 31 March or 31 December — affects how much breathing room the scheme gives you.
Should you file a return even with no profit?
Yes. Once the IRD issues a Profits Tax Return, you must file it even if your company has not started trading or made no profit — that is a NIL return, and ignoring an issued return is an offence regardless of whether tax is due.
Separately, if your company has assessable profits but has not received a return, you must notify the IRD that you are chargeable within 4 months of the end of your accounting year. New companies sometimes assume “no return means nothing to do” — the obligation to notify sits with you.
When should you NOT rush an offshore claim?
If your operations are genuinely mixed, or you cannot yet evidence where the profit-generating activity happened, do not file a speculative offshore claim just to lower your first bill. A claim that fails on review can trigger a detailed enquiry, back-tax, and a loss of credibility on future returns. It is usually better to file accurately, pay the (modest, two-tier) tax, and build the documentation properly before claiming offshore status in a later year.
First profits tax return — basic checklist
- Confirmed your accounting year-end date (it drives every deadline).
- Audited financial statements prepared by a Hong Kong CPA.
- Tax computation reconciling accounting profit to assessable profit.
- Decided two-tier eligibility — checked the connected-entity position if you are in a group.
- Decided whether any offshore claim is genuinely supportable (and gathered evidence if so).
- Noted the compliance date on page 1 of the return, and whether a tax representative / block extension applies.
Why do new companies get profits tax wrong?
- Confusing accounting profit with assessable profit — forgetting to add back non-deductible expenses.
- Assuming offshore = exempt without making or supporting a claim.
- Missing the connected-entity rule and wrongly expecting 8.25% on a group subsidiary.
- Treating the first return like a normal 12-month one — it usually covers a longer period and has its own compliance date.
- Leaving the audit too late, so the return cannot be filed on time because the accounts are not signed off.
Which new companies are most likely to run into trouble?
Companies with cross-border operations, group subsidiaries of overseas parents, and businesses with large first-year transactions face the most scrutiny. These are exactly the cases where source, connected-entity status, and the size of the first assessable-profit figure interact — and where a CPA review before filing pays for itself.
Before you submit — a final self-check
Confirm the rate applied (8.25% up to HK$2M, 16.5% above), confirm your source position is honest and evidenced, confirm the audited accounts and tax computation are attached, and confirm you are filing by the date printed on page 1. If any of those four is uncertain, get it checked before submission rather than after.
When should a new company bring in a professional team?
If your business has any offshore element, sits inside a group, or simply has never filed a Profits Tax Return before, it is worth having a CPA handle the first cycle end-to-end — audit, tax computation, and return. PAT Certified Public Accountants Limited is led by Tommy Chan, CPA (HKICPA membership P06975, Fellow F08355; firm Corporate Practice S0395), and routinely prepares first-year profits tax filings for newly incorporated and foreign-owned companies.
Official sources
Frequently asked questions on Hong Kong profits tax for a new company
What is the Hong Kong profits tax rate for a new company?
Under the two-tier regime, a corporation pays 8.25% on its first HK$2 million of assessable profits and 16.5% on profits above HK$2 million. Only profits sourced in Hong Kong are taxed.
When does a new Hong Kong company pay tax?
The IRD issues a new company’s first Profits Tax Return about 18 months after incorporation. You then file within the time shown on the return (normally 1 month from the date of issue) and pay the resulting assessment.
When will I receive my first profits tax return in Hong Kong?
Generally about 18 months after the date of incorporation or commencement of business. This first return often covers more than 12 months, and the compliance date is printed on page 1.
What is taxable under Hong Kong profits tax?
Only profits arising in or derived from Hong Kong. Hong Kong uses a territorial-source basis, so genuinely offshore profits may be exempt — but you must make and support an offshore claim; it is not automatic.
Does my new company need an audit before filing?
Yes. A limited company files BIR51 together with audited financial statements and a tax computation. The audit report and the profits tax return are prepared as a single exercise.
Do I still file if my company made no profit or has not started trading?
Yes. Once a return is issued you must file it, even as a NIL return. Separately, if you have assessable profits but received no return, you must notify the IRD of chargeability within 4 months of your accounting year-end.
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