Best Accounting
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Hong Kong

The Two-Tiered Profits Tax Rates Regime is the cornerstone of Hong Kong's corporate tax landscape and was confirmed unchanged in the 2026-27 Budget delivered in February 2026. For incorporated corporations: the first HK$2 million of assessable profits is taxed at 8.25%, and all remaining profits above HK$2 million are taxed at 16.5%. For unincorporated businesses (sole proprietorships and partnerships): the first HK$2 million is taxed at 7.5% and the remainder at 15%. The 2026-27 Budget also announced a 100% reduction in profits tax payable for the year of assessment 2025/26, capped at HK$3,000 per case (subject to legislative amendment). Critically, the connected-entities rule limits the two-tiered concession to one entity per controlled group per year of assessment — the IRD enforces strict anti-avoidance to prevent profit splitting across related companies. We compute the two-tiered allocation correctly, identify the optimal entity within a group structure, and prepare BIR51 / BIR52 / BIR54 / BIR60 filings with full supporting workpapers.

Hong Kong operates a territorial tax system: profits tax applies only to income arising in or derived from Hong Kong, regardless of the company's place of incorporation or the residence of its owners. The IRD applies an 'Operations Test' to determine source — examining where the profit-generating activities actually occur, including contract negotiation, contract conclusion, service delivery, and key business decision-making. If those activities take place wholly outside Hong Kong, the resulting profits may qualify for offshore exemption. Offshore claims must be supported by detailed documentation: contracts, correspondence trails, travel records, board minutes, and economic substance evidence. Since the 2024–25 strengthening of the Foreign-Sourced Income Exemption (FSIE) regime, offshore claims for passive income (interest, dividends, disposal gains, IP royalties) now require documented economic substance or qualifying participation exemption. Our service includes preparing offshore claim documentation, advising on substance evidence, and supporting IRD advance ruling applications.

Under the Companies Ordinance (Cap. 622), every Hong Kong-incorporated private company is required to have its annual financial statements audited by a Hong Kong Certified Public Accountant — there is no audit-exemption regime for active HK private companies as there is in the UK or other jurisdictions (only dormant companies that have filed a valid dormancy declaration are exempt). The audited financial statements must accompany the IRD Profits Tax Return BIR51. Our role: we prepare HKFRS-compliant financial statements (with HKFRS for Private Entities available for smaller companies), maintain general ledgers and journals, prepare full audit working papers (lead schedules, depreciation schedules, accruals and prepayment listings, fixed asset registers, related-party transaction summaries, going-concern memos), and liaise directly with your appointed Hong Kong CPA throughout the audit. Audit cycles typically complete 30–50% faster than firms working with poorly prepared books.

Yes — white-label production accounting is one of our core service lines for Hong Kong CPA firms, accountancy practices, and corporate services providers across Central, Sheung Wan, Wan Chai, Causeway Bay, Quarry Bay, Tsim Sha Tsui, and Cyberport. Our model: your firm continues as the client-facing CPA / corporate services provider; our offshore team performs the production work behind your branding. Typical scope includes monthly bookkeeping production in Xero, QuickBooks, Sage, or your firm's preferred platform; multi-currency reconciliation (HKD, USD, CNY, EUR, GBP); year-end audit-preparation packs with full lead schedules; draft HKFRS financial statements; draft BIR51/BIR52/BIR60 Profits Tax computations; MPF and IR56B series payroll returns; Companies Registry NAR1 drafts; and offshore claim documentation files. NDA-protected, two-factor authentication, ISO 27001-aligned. HK CPA firms typically achieve 50–70% reduction in production cost vs HK in-house staff.

Hong Kong has enacted domestic legislation implementing the OECD's Pillar Two GloBE rules, comprising the Income Inclusion Rule (IIR) and the Hong Kong Minimum Top-up Tax (HKMTT). The IIR and HKMTT took effect for fiscal years beginning on or after 1 January 2025; the Undertaxed Profits Rule (UTPR) will commence on a date specified by Gazette notice. These rules apply only to MNE groups with annual consolidated revenue of EUR 750 million or more in at least two of the four preceding fiscal years. In-scope groups must compute Effective Tax Rate (ETR) on a per-jurisdiction basis; if Hong Kong ETR falls below the 15% global minimum, top-up tax becomes payable. The HKMTT is structured as a Qualified Domestic Minimum Top-up Tax (QDMTT) so the top-up revenue is collected by Hong Kong rather than the parent jurisdiction. For SME and mid-market clients (below EUR 750 million revenue), Pillar Two does NOT apply — the standard Two-Tiered Profits Tax Rates remain the only profits tax framework. For in-scope MNE clients, our service includes ETR computation, GloBE Information Return (GIR) data preparation, HKMTT calculations, and integration with group-level Pillar Two reporting.

Hong Kong employers must comply with three parallel statutory frameworks: (1) MPF (Mandatory Provident Fund) — every employer must enrol eligible employees aged 18 to 64 in an MPF scheme within 60 days of employment, deduct 5% mandatory employee contributions and pay 5% mandatory employer contributions on relevant income up to HK$30,000 per month, and remit contributions to the trustee within 10 days of month end; (2) IRD employer returns — annual Form IR56B for each employee's remuneration, IR56E for new hires within 3 months of commencement, IR56F for terminations 1 month before departure, and IR56G for employees leaving Hong Kong for more than 1 month; (3) Companies Registry annual return Form NAR1 — must be filed within 42 days of the anniversary of the company's incorporation, with details of registered office, directors, secretary, members and share capital. Late NAR1 filings attract escalating penalties and risk striking-off. Our payroll service handles MPF setup with the trustee of your choice (HSBC, Manulife, AIA, Sun Life, BOCI Pru), monthly contribution computation and remittance, IR56 series filings, and integration with NAR1 and audit timelines.