Hong Kong Economic and Trade Office, San Francisco
Hong Kong
New tax system

A new, two-tiered profits tax rates regime will be implemented from April 1.

The initiative was announced in the 2017 Policy Address.

The Government said the two-tiered profits tax rates regime will reduce the burden on businesses, especially small and medium enterprises, and startups.

It said the arrangement will help foster a favorable business environment, drive economic growth, create job opportunities and enhance Hong Kong's competitiveness.

Under the new system, the tax rate for the first HK$2 million (US$0.25 million) of company profits will be lowered to 8.25%, while profits above that amount will continue to be subject to the 16.5% tax rate.

For unincorporated businesses such as partnerships and sole proprietorships, the two-tiered tax rates will correspondingly be set at 7.5% and 15%.

Assuming 20% of the tax-paying enterprises are connected enterprises, the tax revenue forgone due to the implementation of the initiative will be about HK$5.8 billion (US$743.5 million) per year, or around 4% of the total profits tax received in 2016-17, the Government said.

A tax-paying corporation or unincorporated business could save up to HK$165,000 (US$21,000) and HK$150,000 (US$19,000) each year.

The new arrangement will benefit eligible enterprises with assessable profits, irrespective of their size. However the application of the two-tiered rates is restricted to only one enterprise nominated among connected entities to ensure the benefits will target small and medium enterprises.

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