Hong Kong Bond & Fixed Income Tax — Interest Income & Bond Trading Guide

It depends on the bond. Interest from "qualifying debt instruments" (QDIs) registered with the HKMA under s.26A(1A) IRO is exempt from profits tax. This exemption covers Exchange Fund Bills and Notes, HKMA-registered corporate bonds, and most listed debt securities meeting the QDI criteria. Interest from non-qualifying bonds (many foreign bonds, unregistered corporate bonds) is fully taxable as business income if received in the course of a trade or business, or as other income for individuals.

If you hold bonds as a capital investment (long-term, held to maturity, passive investor), gains on disposal are generally not subject to HK profits tax (no CGT). If you actively trade bonds — buying and selling before maturity as a business — gains are likely taxable as trading profits. The distinction depends on your holding period, frequency of trading, and investment intent. Professional bond traders and active fixed income managers are almost always treated as trading.

Hong Kong has introduced specific incentives to attract green and sustainable bond issuance: (a) a profits tax concession for bond issuers on qualifying green bond issuance costs; (b) stamp duty concession on certain green bond transactions; and (c) government guarantees for green bond programmes. These incentives have been progressively expanded under successive budgets. The conditions and applicable incentive depend on whether the bond is certified under recognised green bond frameworks (e.g., HKQAA, ICMA Green Bond Principles).

HK Government retail bonds (e.g., Silver Bonds, iBonds) issued by the government are QDIs — interest received is exempt from profits tax. For individual investors, this interest is also not subject to salaries tax. These bonds are designed to be fully tax-free for retail investors. However, if you trade them before maturity and make a capital gain, the normal capital vs trading analysis applies.

When you buy a bond between coupon dates, you pay accrued interest (the portion of the next coupon accrued since the last payment). When you receive the full coupon, the accrued interest portion you paid is a cost that offsets the coupon income — you are only taxed on the net coupon accruing during your holding period. When you sell a bond, accrued interest received from the buyer is treated as coupon income, not as part of the capital gain. This accrued interest treatment is important for accurate tax reporting on fixed income portfolios.

Yes — if you are carrying on a business and receive interest from foreign bonds in the course of that business, the interest is taxable in Hong Kong (territorial basis — the source rules for interest are complex). Even for QDI bonds, if the interest arises from a business activity (as opposed to a passive investment), it may be treated as business income. Offshore bond interest received by a passive individual investor is generally not subject to HK tax — but the passive vs business distinction matters.