Income tax
Hong Kong has no single income tax. Learn how salaries tax, profits tax and property tax work.
Published Thursday 6 August 2026
Table of contents
Key takeaways
- Hong Kong does not have a single income tax. Instead, it levies three separate direct taxes: salaries tax on employment income, profits tax on business profits and property tax on rental income.
- Salaries tax uses progressive rates from 2% to 17%, but taxpayers pay the lower of the progressive calculation or the two-tiered standard rate (15% on the first HK$5 million, 16% thereafter).
- Corporations pay profits tax at 8.25% on the first HK$2 million of assessable profits, then 16.5% above that threshold. Sole proprietors and partnerships pay 7.5% and 15% respectively.
- Hong Kong has no capital gains tax, no VAT or GST and does not tax dividends or most interest income.
How Hong Kong taxes income
Hong Kong does not have a single unified income tax. Instead, the Inland Revenue Ordinance imposes three separate direct taxes on different types of income. All three taxes operate on a territorial basis, meaning only income arising in or derived from Hong Kong is taxable.
The three direct taxes are:
- Salaries tax: charged on income from employment, office and pension
- Profits tax: charged on profits from a trade, profession or business carried on in Hong Kong
- Property tax: charged at 15% on the net assessable value of rental income from land or buildings in Hong Kong
This territorial system means that income sourced outside Hong Kong is not taxed, even for Hong Kong residents. There are no state, provincial or local income taxes.
Salaries tax rates
Salaries tax applies to your employment income after allowances and deductions. For the year of assessment 2026/27, the progressive rates on net chargeable income are:
- First HK$50,000 at 2%
- Next HK$50,000 at 6%
- Next HK$50,000 at 10%
- Next HK$50,000 at 14%
- Remainder at 17%
However, a two-tiered standard rate also applies: 15% on the first HK$5 million of net income, and 16% on the remainder. You pay whichever calculation produces the lower amount. Most employees with modest incomes benefit from the progressive rates, while higher earners may find the standard rate more favourable.
Profits tax for businesses
If you run a business in Hong Kong, your net profit from that trade is subject to profits tax. The two-tiered profits tax rates for the year of assessment 2026/27 are:
- Corporations: 8.25% on the first HK$2 million of assessable profits, 16.5% on the remainder
- Unincorporated businesses (sole proprietors and partnerships): 7.5% on the first HK$2 million of assessable profits, 15% on the remainder
Only one entity within a group of connected entities can benefit from the lower two-tiered rate. The reduced rate on the first HK$2 million helps keep tax costs manageable for smaller operations.
How to calculate your tax
Your tax liability depends on which type of income you earn. Here are two worked examples to illustrate how the calculations work in practice.
Salaries tax example
Suppose your net chargeable income (after the basic allowance of HK$145,000) is HK$300,000. Using the progressive rates:
- First HK$50,000 × 2% = HK$1,000
- Next HK$50,000 × 6% = HK$3,000
- Next HK$50,000 × 10% = HK$5,000
- Next HK$50,000 × 14% = HK$7,000
- Remaining HK$100,000 × 17% = HK$17,000
Total using progressive rates: HK$33,000. Compare this to the standard rate calculation: HK$300,000 × 15% = HK$45,000. Because HK$33,000 is lower, you would pay HK$33,000.
Profits tax example
If your unincorporated business earns assessable profits of HK$2,500,000, you would calculate profits tax as follows:
- First HK$2,000,000 × 7.5% = HK$150,000
- Remaining HK$500,000 × 15% = HK$75,000
Total profits tax: HK$225,000.
Allowances and deductions
Hong Kong offers personal allowances that reduce your chargeable income before tax rates apply. For the year of assessment 2026/27, the basic personal allowance is HK$145,000 and the married person's allowance is HK$290,000. You can claim the married person's allowance if your spouse has no income or you elect joint assessment.
You can also claim deductions for:
- Mandatory contributions to the Mandatory Provident Fund (MPF)
- Approved charitable donations
- Self-education expenses, home loan interest and other specified outgoings
Hong Kong does not use tax credits in the way that some other jurisdictions do. Instead, allowances and deductions reduce your assessable income directly.
Reporting and paying your tax
The Inland Revenue Department (IRD) administers all three direct taxes. The Hong Kong year of assessment runs from 1 April to 31 March. Individuals file using the Tax Return - Individuals (BIR60), while businesses file a profits tax return.
Tax is collected on a provisional basis. Provisional salaries tax, profits tax and property tax are charged based on your previous year's assessment and set off against the final tax when your return is assessed. This differs from quarterly estimated payments used in some other jurisdictions.
Resident individuals can elect Personal Assessment, which combines all their income sources and may result in a lower overall liability. Good small business bookkeeping throughout the year makes filing more straightforward.
For the year of assessment 2025/26, the government announced a one-off 100% reduction of profits tax, salaries tax and tax under personal assessment, capped at HK$3,000 per case.
What information do you need to calculate your tax?
Accurate records throughout the year simplify tax time. If you run a small business, keep the following information organised and accessible.
- Total revenue and sales records for the year
- Business expenses with supporting invoices and receipts
- Net profit figure from your financial statements
- MPF contribution statements
- Receipts for approved charitable donations
- Bank statements and reconciliation records
Having reliable small business accounting practices in place means you can calculate your tax liability confidently and respond quickly to any IRD queries.
Simplify your Hong Kong tax with Xero
Keeping your income and expenses organised is easier when your records are accurate and up to date. Xero accounting software helps you track every transaction, categorise expenses and produce reports that support your tax return.
With bank feeds that update automatically and dashboards showing your financial position in real time, you can focus on running your business. When tax time arrives, your profit and loss report is ready for your accountant or for filing your own return. Good bookkeeping habits built into Xero mean fewer surprises at year end.
To see how Xero can help your Hong Kong business stay organised, get one month free and try it for yourself.
FAQs on income tax
Here are answers to common questions about how income is taxed in Hong Kong.
Does Hong Kong have income tax?
Hong Kong does not have a single income tax. It levies three separate direct taxes: salaries tax, profits tax and property tax, each applying to a different type of income.
What are the salaries tax rates in Hong Kong?
Progressive rates range from 2% to 17% on net chargeable income. You pay whichever is lower between the progressive calculation and the two-tiered standard rate of 15% (or 16% above HK$5 million).
How are business profits taxed in Hong Kong?
Corporations pay 8.25% on the first HK$2 million of assessable profits and 16.5% above that. Unincorporated businesses pay 7.5% on the first HK$2 million and 15% on the remainder.
Is there capital gains tax or VAT in Hong Kong?
No. Hong Kong does not impose capital gains tax, value-added tax (VAT) or goods and services tax (GST), and it does not tax dividends or most interest income.
What is provisional tax?
Provisional tax is an advance payment charged on your previous year's assessment. It is set off against the final tax once your current year's return is assessed by the IRD.
Related terms
Learn more about income tax
Handy resources
Advisor directory
You can search for experts in our advisor directory
P&L template
Download a P&L template to track your profitability
Smash through tax time
Automate your record-keeping and experience push-button reporting for an almost-pleasant tax time.
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.