Hong Kong introduces two-tier profits tax rates regime

Updated time: 29 May, 2018, 00:00 (UTC+08:00)

The Inland Revenue (Amendment) (No. 7) Bill 2017 (Amendment Bill) will be gazetted this Friday (December 29). The Amendment Bill seeks to implement the two-tiered profits Hong Kong tax rates regime announced by the Chief Executive in her maiden 2017 Policy Address.

"It is our objective to adopt a competitive taxation system to promote economic development while maintaining a simple tax regime and low tax rates. Introducing a two-tiered profits tax rates regime will reduce the tax burden on enterprises, especially small and medium enterprises (SMEs) and startup enterprises. This will help foster a favourable business environment, drive economic growth and enhance Hong Kong's competitiveness," a government spokesman said.

Under the proposed regime, the profits tax rate for the first $2 million of profits of corporations will be lowered to 8.25 per cent. Profits above that amount will continue to be subject to the tax rate of 16.5 per cent.

More incentives - more opportunities

For a year of assessment commencing on or after 1 April 2018, profits tax is chargeable for a corporation:

Assessable Profits	Hong Kong Corporate Tax Rates
First HK$2,000,000	8.25%
Beyond HK$2,000,000	16.5%

For this change, HK Government facilitates to SMEs and startups for developing sustainably in this dynamic market.

This is a welcome tax incentive and it definitely will help relieve the tax burden for SMEs and start up businesses in particular. It will be crucial for organizations with related entities (e.g., business groups) to revise their current structures as each group will have to select one member in the group to benefit by the reduction of tax rate.