Introduction of 2 Tiered Profits Tax System  

On 29 December 2017, the Hong Kong government sought to implement a two-tiered profits tax rates regime.

Under the proposed regime, the profits tax rate for the first HKD 2 million (approximately US$250k) of profits of corporations will be reduced to 8.25%, while the standard profits tax rate of 16.5% will remain unchanged for profits beyond HKD 2 million. For unincorporated businesses, ie:  partnerships and sole proprietorships, the two-tiered tax rates will be set at 7.5% and 15%, respectively.

The proposed two-tiered profits tax rates regime will benefit all eligible enterprises with assessable profits, irrespective of their size. To ensure that the tax benefits are enjoyed by small and medium-sized enterprises (SMEs), restrictions will be introduced.

This move continues to cement Hong Kong’s role as an important trading nation and allows for small and medium companies to continue to benefit from a lower rate.  Without CGT and with a source-based tax system, Hong Kong remains a useful country to use for trading and investment purposes.  Whilst the top rate is now similar to those found in Europe such as Ireland and the UK, the absence of other taxes, and its relatively regulatory-free environment make it an attractive option to consider.