Digital Tax Compliance in Hong Kong: Preparing for Global Reporting Standards

Last Updated: December 2025

Global Tax Reform Landscape Impacting Hong Kong

The global tax landscape is undergoing a fundamental transformation, driven by international cooperation efforts focused on combating tax avoidance and ensuring fair taxation in the digital economy. Hong Kong, as a leading international financial center and a jurisdiction committed to international tax compliance, has embraced these global standards while maintaining its competitive tax advantages.

In July 2021, Hong Kong joined more than 130 jurisdictions in accepting the Organisation for Economic Co-operation and Development’s (OECD) two-pillar solution to tackle base erosion and profit shifting (BEPS) risks arising from the digitalization of the economy, commonly known as BEPS 2.0.

The OECD’s Two-Pillar Approach

The OECD’s BEPS 2.0 framework consists of two main pillars:

• Pillar One: Focuses on the reallocation of taxing rights over the profits of the largest and most profitable multinational enterprises to market jurisdictions, ensuring that digital businesses pay tax where their users and customers are located
• Pillar Two: Introduces a global minimum corporate tax rate of 15% to reduce the incentive for profit shifting and create a level playing field for all jurisdictions

Hong Kong has prioritized the implementation of Pillar Two, which directly impacts how multinational enterprises structure their operations and tax planning strategies in the region.

Hong Kong’s Implementation of the Global Minimum Tax

Legislative Framework

On 6 June 2025, Hong Kong enacted the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Ordinance 2025, formally implementing Pillar Two of the OECD BEPS 2.0 initiative. The legislation introduces the following key components:

Scope of Application

The global minimum tax and HKMTT apply to multinational enterprise groups that meet the following criteria:

• Consolidated annual revenue of EUR 750 million or more in at least two of the previous four fiscal years
• At least one constituent entity or permanent establishment in Hong Kong
• Operating in two or more tax jurisdictions

Important Note: The vast majority of corporate taxpayers in Hong Kong, including local small and medium enterprises (SMEs), will not be affected by these rules. Only large-scale MNE groups fall within the scope of the global minimum tax framework.

Excluded Entities

Certain types of entities are excluded from the HKMTT and GloBE rules, including:

• Government entities and international organizations
• Non-profit organizations
• Pension funds and retirement benefit plans
• Investment funds and real estate investment vehicles that are ultimate parent entities

Hong Kong Residency Rules

With retrospective effect from 1 January 2024, an entity is considered a Hong Kong-resident entity if:

• It is incorporated or constituted in Hong Kong, OR
• It is normally managed or controlled in Hong Kong

Compliance Requirements for the Global Minimum Tax

Filing Obligations and Deadlines

Safe Harbor Provisions

To reduce compliance burden, Hong Kong has implemented several safe harbor mechanisms developed by the OECD:

• Transitional Country-by-Country Reporting (CbCR) Safe Harbour: Relieves groups from full GloBE calculations if certain CbCR metrics are met
• Transitional UTPR Safe Harbour: Provides temporary relief from UTPR calculations
• QDMTT (Qualified Domestic Minimum Top-up Tax) Safe Harbour: Recognition of Hong Kong’s HKMTT as a qualified domestic top-up tax
• Simplified Calculations Safe Harbour: For non-material constituent entities with simplified compliance requirements

Assessment and Collection

The Hong Kong Government has established specific limitation periods for raising top-up tax assessments:

• Non-evasion cases: 8 years from the end of the relevant fiscal year (or from the end of March in the following year if the year-end is not 31 March)
• Evasion-related cases: 12 years from the end of the relevant fiscal year

Mandatory E-Filing and Digital Reporting Requirements

Phased Implementation Timeline

New Tax Portal System (Launched July 2025)

The Inland Revenue Department launched three new digital portals in July 2025 to facilitate electronic tax filing and enhance taxpayer services:

1. Individual Tax Portal

• Electronic filing of Salaries Tax returns (BIR60)
• Personal Assessment applications
• Tax payment and account management
• Mobile-responsive design for on-the-go access

2. Business Tax Portal (BTP)

• Electronic filing of Profits Tax returns with iXBRL documents
• Submission of financial statements and tax computations
• Business registration matters
• Account registration opened in late April 2025

3. Tax Representative Portal (TRP)

• Services for tax professionals and authorized representatives
• Bulk filing capabilities for multiple clients
• Centralized client management

iXBRL Reporting Requirements

The introduction of inline eXtensible Business Reporting Language (iXBRL) represents a significant shift in how financial information is reported to the IRD. iXBRL allows financial statements to be both human-readable and machine-readable, enabling automated data processing and analysis.

Key Features of iXBRL Filing:

• Taxonomy Package: The IRD provides three taxonomies:
  • Full Hong Kong Financial Reporting Standards (HKFRS) taxonomy
  • HKFRS taxonomy for private entities and SMEs
  • Tax computation taxonomy
• Data Preparation Tools: Free tools available from the IRD:
  • Specified iXBRL Templates Input Tool (for small businesses with pre-defined templates)
  • iXBRL Comprehensive Tagging Tool (for complex tagging requirements)
• Tagging Requirements: The IRD recognizes that comprehensive tagging requires significant effort. During the initial implementation phase, taxpayers are not required to tag every data item in financial statements and tax computations

Updated Taxonomy Package (April 2025)

New versions of the IRD Taxonomy Package in both English and Traditional Chinese were launched on 1 April 2025 with enhancements and updates. All iXBRL data files submitted must conform to this package and comply with technical requirements.

Automatic Exchange of Financial Information (AEOI) and CRS Reporting

Background and Framework

Hong Kong’s commitment to international tax transparency is demonstrated through its implementation of the Common Reporting Standard (CRS), developed by the OECD as a framework for the Automatic Exchange of Financial Account Information (AEOI).

The Inland Revenue (Amendment) (No. 3) Ordinance 2016, enacted on 30 June 2016, established Hong Kong’s legal framework for AEOI, which became effective on 1 January 2017. The first exchange of financial account information occurred in 2018, and Hong Kong now exchanges information with over 120 reportable jurisdictions.

2025 CRS Reporting Requirements

Financial Institution Obligations

Under the AEOI framework, Hong Kong financial institutions must:

1. Identify Reportable Accounts: Financial accounts held by tax residents of reportable jurisdictions or passive non-financial entities (NFEs) whose controlling persons are tax residents of reportable jurisdictions
2. Apply Due Diligence Procedures: Establish and maintain compliant due diligence procedures for account identification
3. Collect Required Information: Gather and maintain information on account holders (individuals and entities) and financial account details
4. Submit Annual Returns: File AEOI returns with the IRD by 31 May each year, covering the previous calendar year

IRD Compliance Inspections

The Hong Kong Inland Revenue Department has moved beyond initial implementation and is now actively conducting compliance reviews of financial institutions. This includes:

• Sending formal inquiry letters to financial institutions and trusts
• Onsite CRS compliance inspections
• Testing whether due diligence procedures have been properly implemented
• Reviewing the accuracy and completeness of filed AEOI returns

Penalties for Non-Compliance

The Inland Revenue Ordinance contains strict penalties for CRS/AEOI non-compliance:

• Failure to establish/maintain due diligence procedures: Fines up to HK$50,000
• Filing incorrect AEOI returns: Fines up to HK$50,000
• Failing to file by deadline: Fines up to HK$50,000
• Persistent non-compliance: Additional penalties up to HK$100,000 and potential imprisonment

Country-by-Country Reporting (CbCR)

Overview

Hong Kong has implemented Country-by-Country Reporting (CbCR) as part of its commitment to the OECD BEPS Action 13 framework. The Inland Revenue Department serves as the competent authority overseeing CbCR compliance in Hong Kong.

Scope of Application

CbCR requirements apply to multinational enterprise groups that meet the following criteria:

• Consolidated annual revenue of at least HKD 6.8 billion (approximately EUR 750 million) in the preceding financial year
• At least one entity or permanent establishment in Hong Kong

Filing Requirements and Deadlines

E-Invoicing in Hong Kong

Current Regulatory Status

Unlike many jurisdictions that have implemented mandatory e-invoicing regimes, Hong Kong currently operates on a voluntary, post-audit e-invoicing model. There is no mandatory requirement for businesses to issue electronic invoices for B2B (business-to-business) transactions.

Legal Framework

E-invoicing in Hong Kong is governed by two primary pieces of legislation:

1. Electronic Transactions Ordinance (Cap. 553): Provides legal recognition for electronic records and signatures, treating them as equivalent to paper documents
2. Inland Revenue Ordinance (Cap. 112): Sets out record-keeping requirements for tax purposes, which can be satisfied through electronic records

Government-to-Business (B2G) E-Invoicing

While B2B e-invoicing remains voluntary, B2G transactions (business-to-government) have specific requirements:

• Companies must send all e-invoices for B2G transactions through the government’s e-procurement portal
• Registration on the e-procurement portal is mandatory for suppliers conducting business with government agencies
• No pre-approval required for individual invoices

Government Initiatives to Promote E-Invoicing

The Hong Kong Government has implemented several initiatives to encourage digital transformation:

• Digital 21 Strategy: Long-term plan to strengthen Hong Kong’s information infrastructure
• Tradelink Ltd: Government-backed e-commerce platform serving nearly 70,000 companies
• Fee Incentives: Reduced fees for electronic submissions compared to paper documents
• Fintech Promotion: Hong Kong Monetary Authority actively promotes fintech solutions, including electronic invoicing

Market Adoption

According to a 2018 Atradius study, over 50% of Hong Kong companies utilized electronic invoicing for B2B transactions, demonstrating significant voluntary adoption despite the absence of mandatory requirements. This trend has continued to grow, driven by:

• Cost-effectiveness and operational efficiency
• Integration with accounting and enterprise resource planning (ERP) systems
• Environmental sustainability goals
• Improved cash flow management through faster processing

Key Differences from Other Jurisdictions

Preparing for Digital Tax Compliance: Practical Steps

For Multinational Enterprises Subject to Global Minimum Tax

1. Assess Scope and Impact:
   • Determine if your group meets the EUR 750 million revenue threshold
   • Identify all Hong Kong constituent entities
   • Calculate current effective tax rates by jurisdiction
2. Implement GloBE Calculation Systems:
   • Develop or acquire software capable of performing complex GloBE calculations
   • Establish data collection processes for all jurisdictions
   • Evaluate safe harbor eligibility to reduce compliance burden
3. Register for Pillar Two Portal:
   • Monitor IRD announcements for portal registration (phased launch from January 2026)
   • Designate responsible personnel for portal access and filing
   • Test portal functionality during transition period
4. Review Tax Planning Structures:
   • Reassess holding company structures in light of 15% minimum rate
   • Evaluate substance requirements in low-tax jurisdictions
   • Consider impact on Hong Kong’s simple tax regime advantages
5. Engage Professional Advisors:
   • Consult with tax professionals experienced in GloBE rules
   • Conduct mock calculations and impact assessments
   • Plan for transition year compliance (18-month filing deadline)

For All Businesses Preparing for Mandatory E-Filing

1. Understand Your Timeline:
   • Large corporations/MNEs: Mandatory from 2025/26 assessment year
   • Medium businesses: Likely mandatory from 2028 (threshold TBA)
   • All businesses: Mandatory by 2030
2. Register for Appropriate Tax Portal:
   • Business Tax Portal for corporate entities
   • Tax Representative Portal for tax professionals
   • Complete registration well before mandatory deadlines
3. Adopt iXBRL Reporting:
   • Download IRD’s free iXBRL Data Preparation Tools
   • Choose appropriate taxonomy (full HKFRS, SME version, or tax computation)
   • Train accounting staff on iXBRL tagging requirements
   • Consider third-party software solutions for complex reporting needs
4. Update Accounting Systems:
   • Ensure accounting software can export data in iXBRL-compatible formats
   • Implement chart of accounts mapping to IRD taxonomy
   • Test data extraction and tagging processes
5. Participate in Voluntary E-Filing:
   • Gain early experience with e-filing processes
   • Benefit from automatic one-month filing extension
   • Identify and resolve technical issues before mandatory compliance

For Financial Institutions (CRS/AEOI Compliance)

1. Review and Update Due Diligence Procedures:
   • Ensure compliance with latest CRS guidance from IRD and OECD
   • Update customer onboarding processes for tax residency determination
   • Implement robust controls for identifying passive NFEs and controlling persons
2. Prepare for IRD Inspections:
   • Maintain comprehensive documentation of CRS procedures
   • Conduct internal audits of CRS compliance
   • Train staff on responding to IRD inquiry letters
   • Keep records of self-certifications and supporting documentation
3. Enhance Data Management:
   • Implement systems to track reportable accounts across all 120+ jurisdictions
   • Automate data collection and validation processes
   • Establish quality control procedures for AEOI return preparation
4. Meet 31 May 2025 Deadline:
   • Complete CbCR report for calendar year 2024
   • Verify accuracy and completeness before submission
   • Submit returns well in advance to avoid last-minute technical issues

E-Invoicing Readiness (Optional but Recommended)

1. Assess Business Benefits:
   • Evaluate cost savings from reduced paper processing
   • Consider integration with accounts payable/receivable systems
   • Analyze potential improvements in cash flow and dispute resolution
2. Choose Appropriate Solution:
   • Simple PDF invoices for small businesses with limited volume
   • Structured data formats (XML, EDI) for higher volumes
   • Third-party e-invoicing platforms for multi-jurisdictional operations
3. Register for B2G E-Invoicing:
   • If conducting business with government agencies, register on e-procurement portal
   • Ensure invoice formats comply with government requirements
4. Monitor Regional Developments:
   • Stay informed about e-invoicing trends in mainland China and other APAC jurisdictions
   • Consider future cross-border e-invoicing interoperability

Strategic Implications for Hong Kong Businesses

Maintaining Tax Competitiveness

Despite the implementation of the global minimum tax, Hong Kong remains committed to maintaining its status as a business-friendly, low-tax jurisdiction. Key competitive advantages include:

• Simple Tax System: No VAT/GST, capital gains tax, or withholding tax on dividends
• Territorial Tax Principle: Only Hong Kong-sourced income is taxable (subject to BEPS rules)
• Low Standard Rates: Profits tax at 16.5% for corporations (8.25% on first HK$2 million under two-tiered rates)
• Extensive Tax Treaty Network: Double taxation agreements with over 40 jurisdictions
• Substance Over Form: Hong Kong’s approach focuses on genuine economic substance rather than strict formalism

Opportunities in Digital Tax Administration

The shift to digital tax compliance creates opportunities for businesses that adapt proactively:

• Operational Efficiency: Automated data processing reduces manual errors and compliance costs
• Real-Time Insights: Digital systems enable better tax planning and cash flow management
• Enhanced Transparency: Demonstrates good governance to stakeholders and regulators
• Competitive Advantage: Early adopters can leverage digital capabilities for strategic advantage

Challenges and Considerations

Businesses should also be aware of potential challenges in the digital tax transformation:

• Implementation Costs: Initial investment in systems, software, and training
• Technical Complexity: iXBRL tagging and GloBE calculations require specialized knowledge
• Data Security: Electronic filing increases importance of cybersecurity measures
• Cross-Border Complexity: Coordinating compliance across multiple jurisdictions
• Regulatory Changes: Ongoing need to monitor and adapt to evolving requirements

Future Outlook and Emerging Trends

Pillar Two Portal and Enhanced Digital Services

The IRD’s Pillar Two Portal, scheduled for phased launch from January 2026, represents the government’s commitment to providing robust digital infrastructure for tax compliance. This will include:

• Secure electronic filing of top-up tax notifications and returns
• Calculation assistance tools and guidance
• Integration with existing eTAX services
• Mobile accessibility and user-friendly interfaces

Potential E-Invoicing Mandate

While Hong Kong currently maintains a voluntary e-invoicing regime, regional trends suggest possible future developments:

• Mainland China’s expanding e-fapiao (electronic invoice) system
• Singapore’s InvoiceNow network based on Peppol framework
• Taiwan, South Korea, and other APAC jurisdictions implementing mandatory e-invoicing

Hong Kong businesses should monitor these developments and consider voluntary adoption to prepare for potential future mandates.

Artificial Intelligence and Tax Technology

The future of tax compliance will increasingly involve AI and advanced analytics:

• Automated Tax Calculations: AI-driven systems performing complex GloBE and transfer pricing calculations
• Predictive Compliance: Machine learning identifying potential compliance issues before they arise
• Natural Language Processing: Automated extraction of tax-relevant data from contracts and documents
• Real-Time Tax Reporting: Continuous compliance monitoring replacing periodic filing

Global Coordination and Standardization

International efforts toward tax harmonization will continue to shape Hong Kong’s tax landscape:

• OECD Guidance Updates: Ongoing refinement of GloBE rules and safe harbors
• BEPS 2.0 Pillar One: Potential future implementation affecting digital economy taxation
• Enhanced CRS Reporting: Possible expansion of reportable information and jurisdictions
• Cross-Border Data Exchange: Increased multilateral automatic information exchange

Disclaimer: This article provides general information about digital tax compliance in Hong Kong and should not be construed as professional tax advice. Tax laws and regulations are subject to change, and specific circumstances vary by business. Readers should consult qualified tax professionals for advice tailored to their particular situations. Information current as of December 2025.