For decades, Hong Kong’s low, simple, and territorial tax system has been a cornerstone of its appeal to global business. But what happens when the global rulebook is rewritten? The OECD’s BEPS 2.0 framework, now being implemented worldwide, represents the most significant shift in international tax rules in a century. For businesses anchored in Hong Kong, this isn’t just about a new compliance form—it’s a fundamental recalibration of how and where profits are taxed. The question is no longer if your business will be affected, but how you can strategically navigate this new landscape to protect, and even enhance, your competitive edge.

Hong Kong’s Tax Pillars in the BEPS 2.0 Spotlight

Hong Kong’s tax DNA—territorial sourcing, no capital gains tax, and a competitive corporate rate—has been a powerful magnet for holding companies, treasury centers, and regional headquarters. BEPS 2.0, particularly its Pillar Two (Global Anti-Base Erosion or “GloBE”) rules, scrutinizes these very features. While Hong Kong’s headline profits tax rate of 16.5% is above the new 15% global minimum, the effective tax rate (ETR) is what matters. Structures that leverage Hong Kong’s exemptions for offshore income or utilize low-tax jurisdictions in a group could now face top-up taxes.

1. The 15% Global Minimum Tax: Beyond the Headline Rate

Hong Kong has formally enacted the Global Minimum Tax under the Inland Revenue (Amendment) (Taxation on Certain Foreign-sourced Disposal Gains) Ordinance 2024 and related legislation. The rules apply for accounting periods beginning on or after January 1, 2025. The core mechanism is simple yet profound: if an MNE group’s ETR in any jurisdiction (including Hong Kong) falls below 15%, a top-up tax will be levied. Hong Kong has implemented both an Income Inclusion Rule (IIR)—which applies the top-up tax at the parent entity level—and a Hong Kong Minimum Top-up Tax (HKMTT) to ensure taxing rights are retained locally.

2. Substance Over Form: The End of “Brass Plate” Companies

The expanded Foreign-Sourced Income Exemption (FSIE) regime, in full effect since January 2024, is Hong Kong’s direct response to BEPS concerns. It mandates that to claim an exemption on four types of foreign-sourced income—dividends, interest, disposal gains, and IP income—a company must meet economic substance requirements in Hong Kong. This means having an adequate number of qualified employees and incurring adequate operating expenditures in the city to manage the relevant activities. This aligns with the global “substance over form” principle, making it essential for holding and IP companies to demonstrate real economic activity.

The Operational Impact: A Compliance and Strategic Minefield

For in-scope MNEs, the burden extends far beyond a potential tax bill increase. The real challenge lies in the complex, data-heavy compliance requirements.

Hong Kong’s Strategic Countermeasures: Evolving to Compete

Recognizing the threat to its competitive position, Hong Kong is not merely complying but actively adapting its tax framework to remain attractive under the new global rules.

• Family Investment Holding Vehicle (FIHV) Regime: Introduced a 0% tax rate on qualifying transactions for family-owned investment holding vehicles with substantial assets under management (minimum HK$240 million). This regime requires substantial activities in Hong Kong, turning a BEPS compliance requirement into a competitive feature.
• Enhanced Treaty Network: Continuing to expand its network of Comprehensive Double Taxation Agreements (CDTAs), which now covers over 45 jurisdictions. These treaties help mitigate withholding taxes and provide certainty, adding value beyond the tax rate.
• Advance Pricing Arrangements (APAs): The IRD promotes its APA program to provide certainty on transfer pricing arrangements, helping businesses pre-resolve potential disputes and align with the arm’s length principle central to BEPS.

Action Plan for Hong Kong Businesses

Whether your group is immediately in scope of Pillar Two or not, the direction of travel is clear. Proactive steps are essential.

1. Conduct a BEPS 2.0 Scoping Analysis: Determine if your MNE group meets the EUR 750 million revenue threshold. Model the GloBE ETR for Hong Kong and other key jurisdictions in your group.
2. Substance & Structure Review: Critically assess all Hong Kong entities for compliance with the FSIE economic substance requirements. Consider whether group legal and operational structures remain optimal.
3. Invest in Systems and Data: The compliance burden is data-intensive. Evaluate whether your current financial systems can capture the information needed for GloBE calculations and potential CbCR.
4. Engage with Advisors Early: The rules are novel and complex. Consult with tax professionals who understand both the OECD GloBE rules and Hong Kong’s specific implementing legislation.

The BEPS 2.0 era marks the end of tax competition based on rate alone. For Hong Kong, the future lies in competing on the quality of its ecosystem—its rule of law, financial infrastructure, talent pool, and gateway role. Businesses that thrive will be those that leverage Hong Kong’s fundamental strengths while meticulously building the substance and compliance frameworks that the new world demands. The seismic shift is here; the strategic response begins now.