⚠ Sole Proprietors Must File Profits Tax — Not Salaries Tax
A common mistake: sole proprietors who previously worked as employees try to file BIR60 (salaries tax) instead of BIR52 (profits tax). The two tax systems are separate. Filing the wrong form means missing legitimate business deductions and potentially being assessed incorrectly. As a sole proprietor, your "salary" from your own business is not a deductible expense — your profits are assessed in full after allowable business costs.
Common Challenges
Business Registration Compliance
All sole proprietors must register with the Business Registration Office (BRO) within 1 month of commencing business. Non-registration is a criminal offence.
⚠ Risk: Non-registration fine HKD 5,000 + 3 years' imprisonment
Profits Tax vs Salaries Tax
Sole proprietors pay profits tax on net business income — but can elect Personal Assessment to combine this with other income and claim additional allowances.
⚠ Risk: Missing Personal Assessment election → overpaying on combined income
What Counts as Allowable Expenses
Business expenses must be "wholly and exclusively" incurred in producing profits. Mixed personal/business costs require careful allocation.
⚠ Risk: IRD disallowing claimed expenses → higher assessed profits + penalties
Offshore Profits Claim
Profits from services rendered entirely outside HK are exempt from HK profits tax. The IRD requires strong evidence of offshore activities.
⚠ Risk: Unfounded offshore claim → IRD rejection + full assessment with interest
Who Is This For?
Freelancers and independent consultants
Professionals operating without a company structure, invoicing clients directly in their own name.
Tradespeople and service providers
Plumbers, electricians, tutors, coaches, and other sole traders operating in HK.
Creative professionals
Designers, photographers, writers, and artists earning project-based income.
Professional practitioners
Lawyers, accountants, and surveyors in sole practice (not partnership or company).
Online business operators
E-commerce, dropshippers, and online service providers without a corporate structure.
Those transitioning from employment to self-employment
Former employees setting up on their own and needing to understand the switch from salaries to profits tax.
What We Do
Business Registration Setup
We advise on business name registration with the BRO and IRD notifications for profits tax purposes.
Including sole proprietorship vs partnership vs company comparison
Profits Tax Return Filing (BIR52)
We prepare your annual profits tax return with full profit and loss accounts.
Adjusted profits computation per IRO Schedules
Deductible Expense Optimisation
We identify all allowable business expenses, capital allowances, and depreciation claims.
Including home office proportion, vehicle costs, professional subscriptions
Offshore Profits Claim
Where business activities are conducted outside HK, we prepare a documented offshore income claim.
With travel records, client communications, and contract evidence
Growth & Incorporation Planning
When profits exceed HKD 2M, we model whether incorporation into a HK company provides tax savings.
Comparing 15% unincorporated rate vs 8.25% corporate rate on first HKD 2M
How It Works
Business Setup & Registration Advice
1 dayWe advise on the most tax-efficient structure from day one of your business.
Bookkeeping & Records Review
2–3 daysWe review your income and expense records for the tax year and identify missing documentation.
Profits Computation
2–3 daysWe prepare a tax-adjusted profits computation with all allowable deductions and capital allowances.
BIR52 Filing & IRD Correspondence
As requiredWe file your profits tax return and respond to any IRD follow-up queries.
Case Studies
Independent IT consultant — HK and Singapore clients
- •Annual profits HKD 980,000
- •45% of work performed in Singapore
- •Offshore claim for Singapore work approved
- •Assessable HK profits reduced to HKD 539,000
“TAX.hk prepared a thorough offshore claim with travel records and client emails. The IRD accepted it first time.”
Freelance designer transitioning from employment
- •Year 1 self-employment profits HKD 360,000
- •Equipment, software, co-working space deducted
- •Personal Assessment election made
- •Spouse allowance and mortgage interest also claimed
“I had no idea I could use Personal Assessment to combine my business profits with mortgage deductions. Game changer.”
Frequently Asked Questions
What is the profits tax rate for a sole proprietor in HK?
For unincorporated businesses (sole proprietors and partnerships), the two-tiered profits tax rates apply: 7.5% on the first HKD 2 million of assessable profits, and 15% on profits above HKD 2 million. This is effectively a half-rate for the first HKD 2M compared to incorporated companies (8.25% / 16.5%).
Can I pay myself a salary as a sole proprietor?
No. You cannot pay yourself a deductible salary as a sole proprietor — you and the business are the same legal entity. Your entire net profit (after allowable business expenses) is assessed to profits tax. This is one of the key reasons profitable sole proprietors often incorporate — to enable a deductible director's salary.
What business expenses can I deduct?
Allowable deductions include: rent for business premises, employee salaries and MPF, professional services (legal, accounting), business insurance, marketing and advertising, professional subscriptions, trade-specific equipment depreciation, and a proportion of home office costs where your home is your principal place of business.
How do I claim that my profits are offshore?
You need to demonstrate that the profit-generating activities — i.e., the services that earned the income — were performed outside HK. Evidence includes: overseas travel records, client meeting minutes, contracts signed abroad, foreign bank statements, and communications showing work was done offshore. The claim is made in your profits tax return with a covering letter.
When do I need to register my sole proprietorship?
You must register with the Business Registration Office (BRO) within 1 month of commencing your business. The annual registration fee is HKD 2,000 (plus a HKD 450 levy) for the first year. You must also notify the IRD that you have commenced a business, triggering your profits tax filing obligations.
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