Hong Kong's two tier profits tax system reduces the rate on an initial band of assessable profits for eligible taxpayers. For a corporation, the rates are 8.25 percent on the first HK$2 million and 16.5 percent above that band, subject to the applicable rules.
Apply the rates to the right figure Use assessable profits after relevant tax adjustments, not gross sales. A company with HK$3 million of turnover does not necessarily have HK$3 million of taxable profit.
An illustrative calculation Assume an eligible corporation has HK$3 million of assessable profits and no other adjustments or reliefs relevant to this example. The first HK$2 million at 8.25 percent produces HK$165,000. The remaining HK$1 million at 16.5 percent produces HK$165,000. The combined amount is HK$330,000 before other applicable factors.
Check connected entities The lower tier is not automatically available to every company in a connected group. The IRD's guidance explains the connected entity rules and election requirements. Review ownership and control before assuming each new company receives a separate lower rate band.
Keep the computation Document eligibility, the assessable profit calculation and any required election. Distinguish the final tax from provisional tax and payment instalments shown on an assessment.
The example is arithmetic, not a personalised estimate. The actual liability depends on income, deductions, losses and applicable regimes. Confirm the complete position before distributing cash to owners.
Sources and scope
General information, not advice for your individual legal or tax position. Confirm current requirements with the relevant authority or provider.