Hong Kong's standard profits tax rate is 16.5% for corporations and 15% for unincorporated businesses (sole proprietorships and partnerships). Under the two-tiered regime that applies from the 2018/19 year of assessment, the first HK$2,000,000 of assessable profits is taxed at 8.25% for corporations and 7.5% for unincorporated businesses, with the standard rate applying to any part over that amount (Inland Revenue Department, "Profits Tax", checked 2026-10-01).
What are the standard rates and the two-tiered rates side by side?
| Corporations | Unincorporated businesses | |
|---|---|---|
| Standard rate | 16.5% | 15% |
| Two-tiered: assessable profits up to HK$2,000,000 | 8.25% | 7.5% |
| Two-tiered: any part of assessable profits over HK$2,000,000 | 16.5% | 15% |
Source: Inland Revenue Department, "Profits Tax"; two-tiered rates apply from the 2018/19 year of assessment; checked 2026-10-01.
The two columns are the whole comparison: below the HK$2,000,000 threshold the lower tier replaces the standard rate, and above it the standard rate applies unchanged.
When does the lower tier apply?
The lower tier applies to the first HK$2,000,000 of assessable profits of a year of assessment, and the standard rate (16.5% or 15%) applies to the excess. It has applied since 2018/19 (IRD, "Profits Tax", checked 2026-10-01).
The complication is not the threshold itself but how many entities can claim it. The two-tiered rates are not per entity by default once businesses are linked to each other.
What happens if you have connected entities?
If, at the end of the basis period, an entity has one or more connected entities, the two-tiered rates apply only to the one entity nominated to be chargeable at those rates. The remaining connected entities are taxed on all of their profits at the standard rate — 16.5% or 15%, as applicable (IRD, "Q & A for Two-tiered Profits Tax Rates Regime", checked 2026-10-01).
In practice this turns the lower tier into a single allocation across a group: one nomination, everyone else on the standard rate.
How does the rule work if one person owns several sole proprietorships?
Each sole proprietorship is treated as a separate entity. Where a natural person owns two or more sole proprietorship businesses, the two-tiered rates are restricted to only one of them — the one that has made an election (IRD, "Q & A for Two-tiered Profits Tax Rates Regime", checked 2026-10-01).
So the choice is explicit rather than automatic: a person running several sole proprietorships must decide which single business uses the lower tier, and the others fall onto the 15% standard rate.
When will a new business receive its first Profits Tax Return?
A newly registered business will generally receive its first Profits Tax Return some 18 months after the date of commencement of business or the date of incorporation. After that, the annual bulk issue of Profits Tax Returns takes place on the first working day of April each year, and returns and any required supplementary forms should generally be filed within one month from the date of issue (GovHK / IRD, "Profits Tax Return and Supplementary Form to Profits Tax Return", last revision July 2026; checked 2026-10-01).
How is a sole proprietorship reported?
A sole proprietorship business is reported in Part 5 of the individual tax return (BIR60). Where the gross income of the sole proprietorship business does not exceed HK$2,000,000, no financial statements need to be attached to the return — but the accounts still have to be kept (IRD, "Tax Reporting for Profits Tax (Sole Proprietorship & Partnership)", checked 2026-10-01).
Does the 2025/26 one-off reduction change these rates?
No: the 2025/26 one-off profits tax reduction of 100%, subject to a ceiling of HK$3,000 per case, is a separate measure — the relevant legislation was gazetted on 22 May 2026, and the reduction applies to final tax only, not to provisional tax (IRD, "2026-27 Budget – Tax Measures", checked 2026-10-01).
FAQ
Is the two-tiered rate automatic for every business?
It applies from 2018/19 without a general application, but it is not available to every linked business at once: where connected entities exist, only the nominated entity uses the two-tiered rates, and where one person owns several sole proprietorships, only the business that has made an election uses them (IRD, checked 2026-10-01).
What rate do the other connected entities pay?
All of their profits are taxed at the standard rate — 16.5% for corporations and 15% for unincorporated businesses (IRD, checked 2026-10-01).
Are two sole proprietorships owned by the same person treated as one business?
No. Each sole proprietorship business is a separate entity, and the two-tiered rates apply to only one of them, the one that has made an election (IRD, checked 2026-10-01).
How long does a new business have before its first Profits Tax Return arrives?
Generally about 18 months after commencement of business or incorporation; subsequent returns are issued in bulk on the first working day of April and are generally due within one month of the issue date (GovHK / IRD, last revision July 2026; checked 2026-10-01).
Does a small sole proprietorship still need to prepare accounts?
Yes. If gross income does not exceed HK$2,000,000, financial statements do not have to be attached to the return, but the accounts must still be maintained (IRD, checked 2026-10-01).
Sources checked 2026-10-01: