Profits Tax

II. Profits Tax

With reference to section 14 of the Inland Revenue Ordinance, Profits Tax shall be charged for each year of assessment on persons carrying on a trade, profession or business in Hong Kong in respect of their assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding onshore profits arising from the sale of "capital assets").

“Persons” (in the context of Profits Tax) include corporations/limited companies, sole proprietorships, partnerships and trustees, etc. Self-employed persons are also included.

There is no distinction made between Hong Kong residents and non-residents. A resident may therefore derive profits from abroad without being taxed in Hong Kong. Conversely, a non-resident may be subject to tax on profits arising in Hong Kong. The question of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong is largely a question of fact. Generally, for Hong Kong companies that are not part of a multinational group, no tax is levied on profits arising abroad, even if they are remitted to Hong Kong.

Hong Kong companies that are part of a multinational group however should be aware of the new foreign-sourced income exemption regime that came into effect on 1 January 2023, under which the prescribed foreign-sourced passive income received in Hong Kong will be subject to Profits Tax unless certain exemption requirements are satisfied, and the ongoing development of the Global Anti-Base Erosion Model Rules (Pillar Two) implementation in Hong Kong.  Hong Kong companies that belong to a multinational group are encouraged to consult professional legal and tax advisors on these matters as they are complex in nature. 

Provisional Profits Tax

Profits Tax is chargeable on the assessable profits of the year. As the profits for any particular year cannot be known until after the year end, a Provisional Tax charge is raised during the course of the year. In the following year, when the profits of the previous year are ascertained, an assessment is made and credit is given for the Provisional Tax paid.

Limited Company's taxation matters 

Every corporation or limited company must appoint an auditor (section 396 of the Companies Ordinance) for the purpose of preparing the annual audited financial statements, and such auditor may also be able to handle the taxation matters of the company as your tax representative. Therefore, please check with your auditor/accountant for any Profits Tax issues concerning a limited company.