Hong Kong Tax Changes — Live Tracker

What changed

Hong Kong enacted the FSIE regime on 1 January 2023 in response to EU and OECD pressure, removing the long-standing offshore claim for passive income. From 1 January 2024 the scope was widened to include all foreign-sourced disposal gains, not only those on equity interests. Companies must demonstrate adequate economic substance in Hong Kong, or qualify under a participation exemption or nexus approach, to avoid taxation on remitted passive income.

Who it affects

• Hong Kong holding companies receiving foreign dividends
• Companies with offshore IP arrangements
• Businesses earning interest from foreign group entities
• MNE groups disposing of foreign assets and remitting gains to HK

What to do

Review your group structure to assess whether Hong Kong entities receiving passive income meet the economic substance tests. Document substance (employees, premises, decision-making) and consider whether the participation exemption or nexus approach applies. Groups that previously relied on the offshore claim for passive income should seek advice on restructuring options before the next remittance.

What changed

From the 2018/19 year of assessment onwards, Hong Kong introduced a two-tier structure to reduce the profits tax burden on smaller businesses. The concessionary rate of 8.25% halves the standard 16.5% corporate rate on the first HK$2 million of profits. A connected-entity restriction ensures only one member of a corporate group can apply the lower tier, preventing artificial splitting.

Who it affects

• All Hong Kong incorporated companies with assessable profits
• Unincorporated businesses (sole traders and partnerships)
• SMEs and startups with profits under or around HK$2 million
• Connected groups where only one entity may claim the lower rate

What to do

Ensure your profits tax return correctly applies the two-tier rates. If you operate multiple connected entities, confirm which one is claiming the lower tier and that the group has not double-claimed. Unincorporated businesses should note their applicable rates (7.5% / 15%) differ from incorporated entities.

What changed

The government announced in the 2024-25 Budget that BSD (15% surcharge on non-permanent residents and companies) and NRSD (also 15% for all buyers on second or subsequent residential properties) were abolished with immediate effect from 28 February 2024. SSD, which applied to properties resold within 24 months, had its holding period shortened. These cooling measures had been in place for over a decade and were removed as the property market softened significantly.

Who it affects

• Non-permanent residents buying Hong Kong residential property
• Companies acquiring residential property
• Individuals purchasing a second or additional residential property
• Property investors considering short-term resales

What to do

Buyers who were previously deterred by the 15% surcharges can now transact without these additional duties. Standard ad valorem stamp duty on the purchase price still applies. If you are considering a residential investment, confirm the current SSD holding period thresholds before transacting, as SSD still applies to very short-term disposals.

What changed

Following the OECD's finalisation of CARF in 2022, Hong Kong confirmed it will adopt the framework as part of its international tax transparency commitments. The IRD will require licensed virtual asset trading platforms (VATPs) and other crypto-asset service providers to conduct due diligence on customers and report transaction data, mirroring the Common Reporting Standard (CRS) regime already in place for financial accounts. Legislation is expected to be enacted ahead of the 2026 start date.

Who it affects

• Licensed virtual asset trading platforms (VATPs) in Hong Kong
• Crypto brokers and exchange operators
• Individuals and businesses holding crypto assets on Hong Kong platforms
• MNEs with treasury functions using crypto assets

What to do

Businesses operating crypto exchanges or platforms in Hong Kong should monitor IRD guidance on CARF implementation and begin updating KYC and customer due diligence procedures. Individuals and companies with significant crypto holdings should be aware that transaction data will be reportable and ensure their tax returns accurately reflect crypto gains and income.

What changed

In line with the OECD/G20 Inclusive Framework, Hong Kong legislated the DMTT as part of its Pillar Two implementation. Groups meeting the €750 million revenue threshold will face a top-up charge in Hong Kong if their effective tax rate on Hong Kong profits falls below 15%. Given Hong Kong's standard profits tax rate of 16.5%, most in-scope entities are not expected to face a top-up on their primary profits, but certain incentive regimes and exemptions (including the two-tier rate) could bring the effective rate below the minimum for some entities.

Who it affects

• Multinational enterprise groups with €750m+ global revenues
• MNE Hong Kong subsidiaries and headquarters
• Groups benefiting from IP box regimes or other tax incentives
• Holding companies with significant passive income exemptions

What to do

In-scope MNE groups should model their effective tax rate in Hong Kong under the GloBE rules. Review whether any exemptions or incentives used in Hong Kong reduce your ETR below 15% and assess the resulting DMTT exposure. Engage your tax adviser to consider whether restructuring or simplification of incentive arrangements is warranted ahead of the 2025 effective date.