An unincorporated business in Hong Kong — a sole proprietorship or a partnership — pays profits tax at 7.5% on the first HK$2,000,000 of assessable profits and 15% on any part over HK$2,000,000 under the two-tiered regime, which has applied since the 2018/19 year of assessment. A corporation pays 8.25% and 16.5% on the same two bands (Inland Revenue Department, Profits Tax, checked 2026-10-01).
The difference matters most for cross-border individuals running a Hong Kong sole proprietorship: the lower band is one percentage point cheaper than the corporate band, but access to it is not automatic once you own more than one business.
What are the two-tiered rates, and how do they compare with a corporation?
The Inland Revenue Department sets the bands as follows:
| Entity | First HK$2,000,000 of assessable profits | Assessable profits over HK$2,000,000 |
|---|---|---|
| Unincorporated business (sole proprietorship, partnership) | 7.5% | 15% |
| Corporation | 8.25% | 16.5% |
Source: IRD, Profits Tax (checked 2026-10-01). The two-tiered rates apply from the 2018/19 year of assessment.
What are the standard rates, and when do they apply instead?
The standard rate is 15% for unincorporated businesses and 16.5% for corporations (IRD, Profits Tax, checked 2026-10-01). It replaces the two-tiered rates where the concession is not available — most commonly because of the connected-entity rule explained below. In that situation the whole of the profits, not just the excess over HK$2,000,000, is taxed at the standard rate for the non-elected entities.
If I own two sole proprietorships, can both use the 7.5% band?
No. Where a natural person owns two or more sole proprietorship businesses, each business is treated as a separate entity, and the two-tiered rates apply 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).
The same logic applies to connected entities generally: if, at the end of the basis period, the entity has one or more connected entities, the two-tiered rates apply only to the entity nominated to be chargeable at those rates. The remaining connected entities are charged at the standard rate — 16.5% for corporations, 15% for unincorporated businesses — on all of their profits.
| Situation | Two-tiered rates available? | Rate on the other entity or entities |
|---|---|---|
| One sole proprietorship, no connected entities | Yes, on that business | — |
| Two or more sole proprietorships owned by the same person | Yes, but only for the business that made the election | 15% on all profits |
| Entity with one or more connected entities at the end of the basis period | Yes, only for the nominated entity | 16.5% (corporation) or 15% (unincorporated) on all profits |
How is a sole proprietorship's profit reported?
A sole proprietorship business is reported in Part 5 of the individual tax return (BIR60) (IRD, Tax Reporting for Profits Tax (Sole Proprietorship & Partnership), checked 2026-10-01).
Two filing points follow from that page:
- If the gross income of the sole proprietorship business does not exceed HK$2,000,000, no financial statements need to be attached to the tax return.
- The records still have to be kept — the concession removes the attachment requirement, not the bookkeeping obligation.
When does a new business get 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 (GovHK / IRD, Profits Tax Return and Supplementary Form to Profits Tax Return, last revised July 2026, checked 2026-10-01).
After that, the IRD's bulk issue of Profits Tax Returns takes place on the first working day of April each year, and the return and any required supplementary forms should generally be filed within one month from the date of issue (same source).
Does the 2025/26 one-off tax reduction change these rates?
It does not change the rate bands. For the year of assessment 2025/26, profits tax, salaries tax and tax under personal assessment are reduced by 100%, subject to a ceiling of HK$3,000 per case; the relevant legislation was gazetted on 22 May 2026 (IRD, 2026-27 Budget – Tax Measures, checked 2026-10-01). Profits tax is computed per business for this purpose.
The reduction applies only to the final tax, not to provisional tax, and it is a one-off measure for 2025/26. The IRD page does not say whether any similar reduction applies in 2026/27.
FAQ
Can each of my sole proprietorships use the 7.5% rate?
No. Each sole proprietorship is treated as a separate entity, and the two-tiered rates are restricted to only one of them — the one that has made an election. The others are taxed at 15% on all profits.
Do partnerships use the same 7.5% and 15% rates?
Yes. Partnerships fall in the same unincorporated-business category as sole proprietorships, so the two-tiered rates are 7.5% on the first HK$2,000,000 of assessable profits and 15% on the excess, with a standard rate of 15%.
Do I need to attach financial statements for a sole proprietorship?
Not where the business's gross income does not exceed HK$2,000,000 — the return can be filed without attaching financial statements. The underlying accounts still need to be kept.
When will a newly started business first be asked to file?
Generally about 18 months after the commencement date or the date of incorporation. Thereafter, returns are issued in bulk on the first working day of April, with one month from the date of issue to file.
Is the HK$3,000 tax reduction available against provisional tax?
No. The 100% reduction for 2025/26, capped at HK$3,000 per case, applies only to the final tax and not to provisional tax.