Hong Kong Accounting Services

Profits Tax — Two-Tier Rates & Filing Deadlines

Hong Kong limited companies are taxed under the two-tier profits tax regime: 8.25% on the first HK$2,000,000 of assessable profits and 16.5% on the excess; unincorporated businesses (sole proprietorships, partnerships) pay 7.5% and 15% respectively. Hong Kong follows a territorial source principle — only profits arising in or derived from Hong Kong are chargeable.

The two-tier regime carries a connected-entity restriction: within a group, only one entity may elect the lower-rate band per year of assessment, and the rest are taxed at the full 16.5% / 15%. We help you nominate the most profitable entity for the election.

The Inland Revenue Department (IRD) issues profits tax returns in bulk every 1 April (BIR51 for corporations, BIR52 for partnerships, BIR54 for non-residents); around 270,000 returns for 2025/26 were issued on 1 April 2026. The filing deadline depends on your accounting year-end "block extension code":

• N code (year-end 1 Apr - 30 Nov): 4 May 2026; voluntary e-filing earns an automatic one-month extension to 4 June.
• D code (year-end 1 - 31 Dec): block extension via a tax representative to 17 August 2026; e-filing extends it further to 17 September.
• M code (year-end 1 Jan - 31 Mar): block extension generally to mid-November 2026, and to around February of the following year for loss cases.

A newly incorporated company generally receives its first profits tax return around 18 months after incorporation. Every limited company — even one running at a loss — must have a statutory audit completed by an HKICPA practising CPA and filed together with the BIR51. Late filing triggers a minimum HK$10,000 penalty and a possible IRD estimated assessment.

2026/27 Budget: a 100% waiver of 2025/26 profits tax is proposed, capped at HK$3,000 per case, subject to enactment. No separate application is needed — the IRD applies it automatically in the final assessment once the legislation takes effect.

Salaries Tax & Personal Assessment — BIR60 Filing

Salaries tax applies to income from employment, an office or a pension in Hong Kong. Assessable income less allowable deductions (mandatory MPF contributions, approved charitable donations, home loan interest / domestic rent deduction, self-education expenses, etc.) and personal allowances gives the "net chargeable income", which is then taxed under whichever of the two methods yields the lower liability:

• Progressive rates: 2% on the first HK$50,000, 6% on the next HK$50,000, 10% on the next HK$50,000, 14% on the next HK$50,000, and 17% on the remainder.
• Standard rate (two-tier): 15% on the first HK$5,000,000 of net assessable income (after allowable deductions but before personal allowances); 16% on the excess.

Key 2025/26 allowances: basic allowance HK$132,000, married person's allowance HK$264,000, plus child, dependent parent / grandparent, single-parent, and disabled dependent allowances. Working couples may elect separate or joint assessment — we calculate which produces the lower combined liability.

The Tax Return - Individuals (BIR60) is issued in early May each year (4 May 2026); the paper deadline is 3 June 2026, and voluntary e-filing through eTAX grants an automatic one-month extension to around 3 July 2026. If you have chargeable income for the year but have not received a BIR60, you must notify the IRD in writing by 31 July (s.51(2), Inland Revenue Ordinance).

2026/27 Budget: a 100% waiver of 2025/26 salaries tax and personal assessment is proposed, capped at HK$3,000 per case, subject to enactment. The IRD will automatically apply the revised allowances when computing 2026/27 provisional salaries tax.

IR56 Series Employer's Returns — Annual & Event-Driven

Every Hong Kong employer must report employee remuneration and staff movements. The IRD issues BIR56A — Employer's Return of Remuneration and Pensions in bulk on 1 April each year, together with IR56B (one for each reportable person), filed within one month — the 2025/26 deadline is 4 May 2026 (shifted from 1 May due to the Labour Day public holiday). A company with no employees must still respond to BIR56A with the "no employees" box ticked.

The IR56 series is used at different events:

• IR56B (annual): every director regardless of income, every employee whose annual income exceeds the basic allowance of HK$132,000, and certain part-time staff likely to have other chargeable income.
• IR56E (new hire): within 3 months of commencement.
• IR56F (cessation, staying in HK): on or before the last working day, or within one month of cessation.
• IR56G (permanent departure): at least one month before departure; the employer is legally required to withhold the employee's final pay until the IRD issues a Letter of Release.
• IR56M (non-employees): commission to consultants or agents exceeding HK$25,000 per year, or sub-contractor payments exceeding HK$200,000 per year.

Since 1 April 2024, the IRD no longer accepts IR56B submissions via USB / CD / DVD; all electronic filings must go through the eTAX Employer's Return e-Filing Services. The IRD has committed to full e-filing by 2030. Payroll records must be kept for at least 7 years (s.51C, Inland Revenue Ordinance).

MPF — Contributions & Compliance

Both the employer and the employee must contribute 5% of the employee's "relevant income" as mandatory MPF contributions. The employer must enrol new staff within 60 days of commencement. For monthly-paid employees, the relevant income floor is HK$7,100/month and the ceiling is HK$30,000/month. Employees earning less than HK$7,100 are exempt from contributing themselves, but the employer must still pay 5%. For employees earning above HK$30,000, each side's contribution is capped at HK$1,500/month. Contributions are due by the 10th of the following month; late payment attracts a 5% surcharge plus a minimum HK$5,000 penalty.

Voluntary employer contributions are tax-deductible against profits tax, subject to a combined cap of 15% of the employee's total emoluments (s.16AA, Inland Revenue Ordinance). The eMPF Platform has rolled out in phases since 2024; by April 2026 nearly all schemes had completed the transition, letting employers handle contributions, onboarding and termination from a single portal.

Note: in March 2026 the MPFA consulted the Labour Advisory Board on raising the minimum relevant income to HK$10,500, the maximum to HK$40,000, and the contribution cap to HK$2,000/month (MPFA proposal) — these proposals are not yet in effect, with the MPFA expected to submit its report to the government by mid-2026. Until the new levels are gazetted, the current HK$7,100 / HK$30,000 / HK$1,500 thresholds apply.

Tax Planning — What SMEs Can Legitimately Do

Legitimate tax planning is about timing and maximising deductions, not evasion. Practical directions we use for SMEs include:

• Two-tier profits tax election: if you hold multiple connected companies, only one can claim the 8.25% lower rate per year of assessment. We assess which entity earns the most and coordinate the election so the group's overall tax bill is minimised.
• Capital allowances: plant and machinery, IT equipment, office fit-out and commercial vehicles depreciate differently for tax than for accounts (60% initial allowance + reducing-balance annual allowance). Correct classification can meaningfully reduce assessable profits.
• Offshore profits claim: profits genuinely arising outside Hong Kong may qualify for exemption, but the IRD demands rigorous evidence of where contracts were negotiated, signed and performed — including emails, meeting records, contract execution locations and staff travel records. We assess whether your facts support an offshore claim before deciding to file one.
• Voluntary employer MPF contributions: used to retain key staff, the employer portion is deductible against profits tax (combined with mandatory contributions, capped at 15% of total emoluments) while improving long-term retirement provision.
• Charitable donation deduction: cash donations to IRD-approved charitable institutions are deductible up to 35% of assessable profits (minimum aggregate HK$100).
• Provisional tax hold-over / instalment: when projected current-year profits drop sharply or the business runs at a loss, you may apply for hold-over within 28 days before the provisional tax due date, easing cash flow.

Every company's facts differ — not every strategy fits every SME. We start by understanding your business model, shareholder structure and forward plans, then propose specific options grounded in current law and IRD practice, with no aggressive avoidance arrangements.