For decades, Hong Kong’s territorial tax system and competitive rates have been cornerstones of its appeal to multinationals. But a seismic shift is underway. The OECD’s BEPS 2.0 framework, specifically its Pillar Two global minimum tax rules, is rewriting the international tax playbook. With over 140 jurisdictions on board, the era of structuring operations purely for low-tax outcomes is ending. For Hong Kong-based businesses, this isn’t a distant regulatory change—it’s a present-day strategic imperative that demands immediate attention and action.

Decoding Pillar Two: The 15% Global Floor and Hong Kong’s Response

While the draft article mentioned both Pillars, Pillar Two is the immediate and direct concern for most Hong Kong businesses. Pillar One, which reallocates taxing rights for the largest multinationals, remains under international negotiation. Pillar Two, however, is already law. Hong Kong enacted its Global Minimum Tax Ordinance (Cap. 635) on June 6, 2025, with rules effective for fiscal years beginning on or after January 1, 2025.

How the Hong Kong Minimum Top-up Tax (HKMTT) Works

A critical feature of Hong Kong’s implementation is the Hong Kong Minimum Top-up Tax (HKMTT). This is a domestic rule that ensures if a multinational group’s ETR in Hong Kong falls below 15%, the top-up tax is paid to Hong Kong instead of to another country under their rules. This protects Hong Kong’s taxing rights and revenue. The HKMTT works alongside the Income Inclusion Rule (IIR), which requires a Hong Kong-based ultimate parent entity to pay top-up tax on low-taxed income of its foreign subsidiaries.

Strategic Implications for Hong Kong Business Models

The impact extends far beyond simple compliance. It necessitates a review of long-standing operational and holding structures.

1. The Substance Imperative

The GloBE rules include a substance-based income exclusion, which carves out a return on tangible assets and payroll costs from the top-up tax calculation. This makes real economic activity—employees, offices, equipment—more valuable than ever. Pure holding companies or “brass plate” entities with little substance will find it harder to shield income from top-up tax.

2. Re-evaluating Holding Structures and Incentives

Businesses must model their ETRs under the new GloBE rules. Hong Kong’s existing incentives, like the two-tiered profits tax rates (8.25% on first HK$2 million for corporations) or the Family Investment Holding Vehicle (FIHV) regime (0% on qualifying income), must be analyzed in the GloBE context. Similarly, the Foreign-Sourced Income Exemption (FSIE) regime for dividends, interest, and disposal gains, effective from January 2024, requires economic substance in Hong Kong—a requirement that aligns with the Pillar Two philosophy.

The Compliance Iceberg: Data, Reporting, and Timing

The administrative burden is substantial. Affected groups will need to:

• Prepare a GloBE Information Return (GIR) for each fiscal year, detailing ETR calculations and top-up tax liabilities for every jurisdiction.
• Maintain detailed data tracking to support the GIR, which may require upgrades to ERP and financial reporting systems.
• Navigate different implementation timelines across the 140+ adopting jurisdictions to avoid double (or missed) taxation.

For the first fiscal years beginning on or after January 1, 2025, the GIR is generally due within 15 months of the fiscal year-end (extending to 18 months for the first year). This timeline is tight given the complexity of the calculations.

BEPS 2.0 Pillar Two is not a future concept—it is the current operating environment for large multinationals. For Hong Kong, a jurisdiction built on global connectivity, this represents both a challenge to traditional structures and an opportunity to reinforce its role as a hub of real, substantive business activity. Proactive strategic review is no longer a luxury; it is a fundamental requirement for fiscal resilience and competitive advantage in the new global tax era.