Is your business navigating Hong Kong’s tax system with outdated information? While the city is famed for its simple, low-tax regime, recent landmark changes have fundamentally reshaped the landscape for SMEs and multinationals alike. From the abolition of major property stamp duties to the introduction of a global minimum tax, understanding the new rules is critical for compliance and strategic planning. This guide cuts through the noise to deliver the verified, actionable insights you need to operate with confidence in 2025.

The New Era of Profits Tax: Clarity and Substance

Hong Kong’s corporate tax system remains highly competitive, but it now demands greater operational substance. The two-tiered profits tax rates—8.25% on the first HK$2 million of assessable profits and 16.5% on the remainder for corporations—are a significant boon for SMEs. However, a crucial rule often missed is that only one entity per group of connected companies can claim the beneficial lower-tier rate. This requires careful group structuring.

The introduction of the Foreign-Sourced Income Exemption (FSIE) regime underscores this shift towards substance. Since January 2024, exemptions for foreign-sourced dividends, interest, disposal gains, and IP income are conditional on meeting an “economic substance” requirement in Hong Kong. For holding companies, this means having an adequate number of qualified employees and incurring adequate operating expenditure in Hong Kong to manage and hold your equity interests.

Case Study: A Tech SME’s Restructuring

Stamp Duty Revolution: What the 2024 Abolition Really Means

In a monumental shift to revitalise the property market, the Hong Kong government abolished all special stamp duty measures on 28 February 2024. This is the single most important change for businesses and individuals dealing with property.

Now, all residential property purchases are subject only to the standard Ad Valorem Stamp Duty (AVD), with rates scaling from HK$100 on the cheapest homes to 4.25% on properties over HK$21.7 million. For businesses, this significantly reduces the cost and complexity of acquiring property for operational use or investment.

The Global Minimum Tax: Hong Kong’s Pillar Two Response

Hong Kong has formally joined the global tax reform with the enactment of the Pillar Two rules on 6 June 2025, effective for in-scope periods starting on or after 1 January 2025. This is not a general tax increase but a targeted rule for large multinational enterprises (MNEs).

The rules apply to MNE groups with annual consolidated revenue of €750 million or more. They introduce a 15% global minimum effective tax rate. Hong Kong has implemented both the Income Inclusion Rule (IIR), which taxes parent entities on the low-taxed income of their subsidiaries, and the Hong Kong Minimum Top-up Tax (HKMTT). The HKMTT is critical—it ensures that any top-up tax arising from operations in Hong Kong is collected by the IRD rather than ceded to another jurisdiction.

Strategic Vehicles: The Family Investment Holding Regime

For wealthy families and investment managers, Hong Kong’s Family Investment Holding Vehicle (FIHV) regime offers a powerful tool. Qualifying FIHVs enjoy a 0% profits tax rate on qualifying transactions, including gains from the sale of private company equity interests.

Eligibility is strict: the vehicle must be centrally managed and controlled in Hong Kong, have minimum assets under management of HK$240 million at year-end, and employ at least two full-time, qualified investment professionals in Hong Kong. This regime is designed to attract substantive family office operations to the city, aligning with the global move towards economic substance.

Compliance & Deadlines: Staying on the Right Side of the IRD

Hong Kong’s system is simple but strict on deadlines and record-keeping. Tax returns for individuals and businesses are typically issued in early May each year.

• Individual Tax Returns: Usually due within 1 month of the issue date (around early June).
• Business Tax Returns: Due dates vary but are strictly enforced. For new companies, the first Profits Tax return is due 3 months after the incorporation date.
• Record Retention: You are legally required to keep sufficient business and accounting records for at least 7 years.
• Interest on Tax: From July 2025, the interest rate on held-over tax is 8.25% per annum.

Hong Kong’s tax system continues to offer unparalleled advantages: territorial taxation, no capital gains tax, and low headline rates. However, the era of passive tax planning is over. The new landscape rewards businesses that establish genuine substance, stay meticulously compliant, and proactively adapt to international standards. By understanding these verified changes, you can secure not just compliance, but a competitive edge in Asia’s premier business hub.