{"id":4739,"date":"2025-03-12T17:29:18","date_gmt":"2025-03-12T09:29:18","guid":{"rendered":"https:\/\/reaphk.com\/what-is-the-two-tiered-profits-tax-rates-regime\/"},"modified":"2025-06-30T10:47:46","modified_gmt":"2025-06-30T02:47:46","slug":"what-is-the-two-tiered-profits-tax-rates-regime","status":"publish","type":"post","link":"https:\/\/reaphk.com\/en\/what-is-the-two-tiered-profits-tax-rates-regime\/","title":{"rendered":"What is the two-tiered profits tax rates regime?"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"4739\" class=\"elementor elementor-4739 elementor-3981\" data-elementor-post-type=\"post\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-d26ccab elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"d26ccab\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-facf14c\" data-id=\"facf14c\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-766079e elementor-widget elementor-widget-text-editor\" data-id=\"766079e\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p><strong>Two-Tiered Profits Tax Regime<\/strong><\/p><p>The Hong Kong Government has set up preferential policies to encourage enterprises to develop and reduce the tax burden on SMEs. This system, which came into effect in the year <strong>of assessment<\/strong> <strong>2018\/19<\/strong>, helps enterprises reduce expenses and promote economic growth by reducing the tax rate on the first part of their chargeable profits.<\/p><p><strong>The tax rate of the two-tiered profits tax system<\/strong><\/p><p>According to the Inland Revenue Ordinance (Cap. 112), Hong Kong adopts a two-tiered corporate profits tax rate, which is divided into two types: limited company (corporation) and sole proprietorship\/partnership (unincorporated corporation).<\/p><ul><li><strong>Limited Company (Corporation):<\/strong><ul><li>The first <strong>HK$<\/strong><strong>2 million<\/strong> of chargeable profits will be taxed at a rate of <strong>8.25%.<\/strong><\/li><li>A <strong>16.5%<\/strong> tax rate applies to the amount exceeding <strong>HK$<\/strong><strong>2 million<\/strong><\/li><\/ul><\/li><li><strong>Sole proprietorship or partnership (unincorporated association):<\/strong><ul><li><strong>A 7.5%<\/strong> rate will apply to the first <strong>HK$<\/strong><strong>2 million<\/strong> of chargeable profits<\/li><li>A <strong>15%<\/strong> tax rate will apply to the amount exceeding <strong>HK$<\/strong><strong>2 million<\/strong><\/li><\/ul><\/li><\/ul><p><strong>An example of the two-tiered profits tax rates regime<\/strong><\/p><p>Assuming that the annual chargeable profits of a limited company are <strong>HK$<\/strong><strong>3 million<\/strong>, the calculation is as follows:<\/p><ol><li>The first <strong>HK$2,000,000<\/strong><strong> is calculated at <strong>8.25%<\/strong>:<\/strong><ul><li>2,000,000\u00d78.25% = <strong>HK$<\/strong><strong>165,000<\/strong><\/li><\/ul><\/li><li>The remaining <strong>HK$1,000,000<\/strong><strong> is calculated at <strong>16.5%<\/strong>:<\/strong><ul><li>1,000,000\u00d716.5% = <strong>HK$<\/strong><strong>165,000<\/strong><\/li><\/ul><\/li><li><strong>Total tax<\/strong> = 165,000 + 165,000 = <strong>HKD 330,000 <\/strong><strong><\/strong><\/li><\/ol><p>If there is no two-tier system, and all profits are calculated at <strong>16.5%,<\/strong> the tax will be as follows:<\/p><ul><li>3,000,000\u00d716.5% = <strong>HK$<\/strong><strong>495,000<\/strong><\/li><\/ul><p>Through the two-tier system, the company can save <strong>HK$<\/strong><strong>165,000<\/strong> in tax.<\/p><p><strong>Conditions and restrictions apply<\/strong><\/p><p><strong>Enterprises that can enjoy the two-tier system<\/strong>:<\/p><ul><li>Enterprises operating in Hong Kong with chargeable profits, including limited companies, sole proprietorships or partnerships.<\/li><\/ul><p><strong>Not applicable in the following cases<\/strong>:<\/p><ol><li><strong>Affiliate Restrictions<\/strong>:<ul><li>Only <strong>one company<\/strong> <strong>within the same corporate group<\/strong> can enjoy a lower tax rate (8.25% or 7.5%).<\/li><li>If a group has more than one company, the IRD will require one of the companies to be designated to enjoy the concession, while the standard tax rate will apply to the remaining companies.<\/li><\/ul><\/li><li><strong>Certain industries or incomes may not be applicable<\/strong>:<ul><li>Some companies engaged in specific industries such as finance and insurance may be subject to other tax regulations and are not subject to the two-tier system.<\/li><\/ul><\/li><\/ol><p>The Inland Revenue Department (IRD) has a two-tiered profits tax rates system<a href=\"https:\/\/www.ird.gov.hk\/chi\/faq\/2tr.htm\" target=\"_blank\" rel=\"noopener\"> https:\/\/www.ird.gov.hk\/chi\/faq\/2tr.htm<\/a><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Two-Tiered Profits Tax Regime The Hong Kong Government has set up preferential policies to encourage enterprises to develop and reduce the tax burden on SMEs. This system, which came into effect in the year of assessment 2018\/19, helps enterprises reduce expenses and promote economic growth by reducing the tax rate on the first part of &hellip;<\/p>\n","protected":false},"author":9,"featured_media":4656,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"none","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[53],"tags":[],"class_list":["post-4739","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporate-tax-returns"],"_links":{"self":[{"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/posts\/4739","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/comments?post=4739"}],"version-history":[{"count":5,"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/posts\/4739\/revisions"}],"predecessor-version":[{"id":4750,"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/posts\/4739\/revisions\/4750"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/media\/4656"}],"wp:attachment":[{"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/media?parent=4739"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/categories?post=4739"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/reaphk.com\/en\/wp-json\/wp\/v2\/tags?post=4739"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}