1. Hong Kong Profits Tax Rates: Making Use of the Two-Tier System
Each April brings the tax returns that Hong Kong business owners call the “green bomb”. For SMEs and startups, understanding the latest requirements for Hong Kong company tax filing in 2025 is essential.
Errors in returns or omitted expenses can lead to unnecessary tax or even penalties. As your professional business partner, M&N has prepared this 2025 guide to help you manage profits tax and focus on growing your business.
Rates for Corporations (Limited Companies)
- First HK$2,000,000 of profits: tax rate 8.25%
- Profits above HK$2,000,000: tax rate 16.5%
Rates for Unincorporated Businesses (Unlimited Businesses, Sole Proprietorships and Partnerships)
- First HK$2,000,000 of profits: tax rate 7.5%
- Profits above HK$2,000,000: tax rate 15%
2. Which Expenses Are Deductible? A Guide for Business Owners
Common deductible expenses:
- Operating expenses: office rent, rates, government rent and utility bills.
- Employee costs: staff salaries, bonuses, allowances and employer MPF contributions, subject to a limit of 15% of salary.
- Day-to-day expenses: business registration fees, accounting and audit fees, and business-related legal advice.
- Asset purchases: machinery, computer hardware and software, usually eligible for an immediate deduction or depreciation allowances.
- Interest expenses: interest on borrowings, subject to specific conditions.
- Donations: donations to approved charities totalling at least HK$100, capped at 35% of assessable profits.
Watch Out: Non-Deductible Expenses
- The proprietor’s or spouse’s salary, for an unlimited business.
- Domestic or private expenses, such as fuel for the owner’s private car unless wholly for business use.
- Capital expenditure: refurbishment costs, for example, are normally spread over several years rather than deducted in full immediately.
- Fines, such as traffic penalties.
3. Filing and Extension Deadlines: N, D and M Codes Explained
Hong Kong company tax return deadlines are determined by the company’s accounting date . The Inland Revenue Department groups companies under N, D and M codes.
A return usually needs to be submitted within 1 month of receipt. A tax representative, such as M&N, can apply for a block extension to obtain more time.
The following are the anticipated extension deadlines for the 2024/25 year of assessment :
| Code | Accounting Date | Normal Filing Deadline | Extended Deadline (Electronic Filing) |
|---|---|---|---|
| N Code (Normal) | 1 April to 30 November | 1 month from issue | No extension (usually early May) |
| D Code (December) | 1 December to 31 December | 1 month from issue | 15 August (usually extended to mid-August) |
| M Code (March) | 1 January to 31 March | 1 month from issue | 15 November (usually extended to mid-November) |
Important: For a newly incorporated company’s first tax return, the usual deadline is 3 months from the date of issue. The categories above do not apply, so take particular care.
4. Why Do You Need an Audit Report?
Many newly incorporated limited companies assume that completing and submitting a tax return is sufficient. Under the Hong Kong Companies Ordinance, however, a limited company must submit an audit report prepared by a practising accountant together with its profits tax return.
Without an audit, the Inland Revenue Department may return the tax return or begin an investigation. A professional audit report is both a legal requirement and an assessment of the company’s financial health, useful for future bank financing or business valuation.
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M&N Helps You Through Tax Season
Tax paperwork is complicated and prone to errors. Instead of spending time studying complex tax provisions, leave the work to professionals.
M&N has extensive Hong Kong tax experience and offers a one-stop service:
- Accounting & Bookkeeping: organising supporting documents and preparing financial statements.
- Audit arrangements: coordinating the statutory audit with a practising accountant.
- Tax representation: calculating tax accurately, applying for extensions and handling tax enquiries.
Do not let tax filing hold back your business. Contact M&N for a straightforward filing plan.
Frequently Asked Questions
Yes, it must file. Even if a company has no profit or makes a loss, it must complete and submit any return issued by the Inland Revenue Department by the deadline. A reminder from M&N: Accurately reporting losses can be beneficial. Losses accepted by the department may be carried forward indefinitely to offset profits in future years, reducing future tax.
Do not misuse it: the risks are substantial. Only a company with no business activity at all during the financial year—no bank transactions, signed contracts or trading records—qualifies for a nil return. Falsely reporting no activity to save audit fees constitutes tax evasion. If discovered, the company may face heavy penalties or prosecution. A limited company should consult M&N about the need for an audit, whether or not it has traded.
At least 7 years by law. Under the Inland Revenue Ordinance, all business records, including receipts, invoices, bank statements and contracts, must be retained for at least 7 years. The department may inspect past accounts. Failure to provide supporting documents can lead to penalties or an estimated assessment, which is often higher than the actual liability.
A: Fines, estimated assessments and potentially court proceedings. The consequences of late filing can vary:
- Fines: a first offence usually incurs HK$1,200 or more, with higher penalties for repeat offences.
- Estimated assessment: the department estimates your profits, often at a high level, and requires immediate payment.
- Prosecution: serious cases may lead to prosecution. If you miss a deadline, contact M&N immediately. We will do our best to help prepare a mitigation letter and address the issue.
A: The audit report requirement.
- Limited company: when filing, it must submit an audit report signed by a practising accountant together with the return.
- Unlimited business: no audit report is required; simple financial statements are sufficient, but all supporting records must still be retained for inspection.
Disclaimer
This article was prepared by M&N using publicly available information and legislation for general guidance only. It should not be treated as legal or other professional advice. M&N accepts no responsibility for actions taken or losses arising from reliance on this article. Legislation changes from time to time; consult the latest official provisions or seek independent professional advice for a specific case.
