Hong Kong’s tax system, long celebrated for its simplicity and low rates, is undergoing its most significant transformation in decades. For a business owner who structured their regional holding company here to benefit from a 16.5% headline tax rate and territorial system, a critical question now emerges: will this model remain viable when a global 15% minimum tax takes effect? The landscape is shifting from predictable, local compliance to a complex, interconnected web of international rules. Understanding these changes isn’t just about avoiding penalties—it’s about strategically positioning your business to thrive in Hong Kong’s next chapter.

The New Reality: Hong Kong’s Enacted Global Minimum Tax

The OECD’s Pillar Two framework is no longer a theoretical discussion for Hong Kong. The Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Ordinance 2024 was enacted on June 6, 2025, with an effective date of January 1, 2025. This brings the 15% Global Minimum Tax into Hong Kong law.

The mechanism is twofold: first, the Income Inclusion Rule (IIR) allows Hong Kong to impose a top-up tax on the low-taxed income of foreign subsidiaries of a Hong Kong-based parent company. Second, and crucially, Hong Kong has implemented its own Hong Kong Minimum Top-up Tax (HKMTT). This means if a Hong Kong entity within an in-scope MNE has an effective tax rate below 15%, the Hong Kong government will collect the top-up tax itself, rather than ceding that revenue to another jurisdiction.

Beyond Pillar Two: Other Critical Reforms Reshaping the System

While the Global Minimum Tax dominates headlines, other recent reforms are already changing the calculus for businesses and investors in Hong Kong.

The End of “Cooling Measures”: Stamp Duty Simplification

In a major policy shift aimed at revitalizing the property market, the Hong Kong government abolished three key stamp duty surcharges on February 28, 2024:

• Special Stamp Duty (SSD): A levy on resale of residential properties within 24-36 months.
• Buyer’s Stamp Duty (BSD): A 15% duty applicable to non-Hong Kong permanent resident buyers.
• New Residential Stamp Duty (NRSD): An additional duty on second property purchases.

This means property transactions are now generally subject only to the standard Ad Valorem Stamp Duty (ranging from HK$100 to 4.25%), making Hong Kong’s residential market more accessible to local and international buyers and investors.

Substance Over Form: The Expanded FSIE Regime

Since January 2024, the second phase of the Foreign-Sourced Income Exemption (FSIE) regime has been in full effect. To claim an exemption for foreign-sourced dividends, interest, disposal gains, and intellectual property income, a company must meet enhanced economic substance requirements in Hong Kong. This requires having an adequate number of qualified employees and incurring an adequate amount of operating expenditures in the city to carry out core income-generating activities. This regime targets shell companies and reinforces that real economic activity must accompany tax benefits.

Strategic Preparation: A Tactical Checklist for Businesses

For companies operating in Hong Kong, proactive preparation is essential. The following checklist provides a starting point for navigating the new tax environment.

1. Determine Your Scope and Exposure

First, ascertain if your multinational group meets the €750 million revenue threshold. If so, conduct a detailed entity-by-entity analysis to calculate the Effective Tax Rate (ETR) in Hong Kong and other jurisdictions. Identify any entities where the ETR falls below 15%, as these will trigger top-up tax liabilities under the HKMTT or other jurisdictions’ IIR rules.

2. Review and Document Substance

Audit your Hong Kong operations against the FSIE economic substance requirements and the potential substance-based carve-outs under Pillar Two. Ensure you have clear documentation of qualified employees, operational expenditures, and decision-making processes physically located in Hong Kong. This is critical for defending your tax position under both regimes.

3. Re-evaluate Holding Structures and IP Planning

Traditional holding structures that relied on passive income flows with minimal substance are now high-risk. Reassess the role of Hong Kong entities within your global chain. For groups with valuable intellectual property, ensure that significant people functions related to development, enhancement, maintenance, protection, and exploitation (DEMPE functions) are aligned with the location of the IP-holding entity and supported by adequate substance.

4. Prepare for Compliance and Reporting

Pillar Two introduces a new, complex layer of global compliance (GloBE Information Return). Begin preparing your data collection systems and processes now. This includes tracking ETR calculations, top-up tax computations, and maintaining detailed supporting documentation. The compliance burden will be substantial for in-scope groups.

Hong Kong’s Enduring Value in a New Tax Era

While tax rates are harmonizing upwards, Hong Kong’s fundamental advantages remain robust and may become even more valuable differentiators:

• Rule of Law & Judicial Independence: A predictable legal system based on common law.
• Free Flow of Capital & Information: No capital controls and a freely convertible currency.
• Strategic Gateway to Mainland China: Unparalleled access to the Greater Bay Area and beyond.
• Deep Financial & Professional Markets: World-class banking, legal, and advisory services.
• Simple & Transparent Tax Regime: Despite new complexities, the core system remains straightforward with no sales tax, VAT, or capital gains tax.

The future of Hong Kong as a business hub will depend less on being a low-tax jurisdiction and more on being a high-value jurisdiction. Its ability to offer stability, connectivity, and talent in a region of growth will be its lasting competitive edge.

The evolution of Hong Kong’s tax system reflects a global move towards transparency and substance. For businesses, the strategy must shift from seeking minimal tax rates to building robust, substantiated operations that can leverage Hong Kong’s unparalleled strengths as a global financial center. The goal is no longer just to be tax-efficient, but to be strategically resilient in a new international tax order.