Profits Tax Two-Tier 2027 Calculator Hong Kong
Hong Kong charges profits tax under the two-tier regime: 8.25% (corporation) or 7.5% (unincorporated business) on the first HKD 2,000,000 of assessable profits, and 16.5% / 15% on profits above. This 2027 calculator works out your exact bill, the saving versus the flat 16.5% rate, the connected-entity nomination check, and provisional tax for next year.
Only ONE in a group can use two-tier rate.
Per 2025/26 Budget cap HKD 1,500 (may carry).
How the Two-Tier Profits Tax Regime Works in 2027
Hong Kong introduced the two-tier profits tax rates in YA 2018/19 to support SMEs. In 2027 the regime continues unchanged: corporations pay 8.25% on the first HKD 2,000,000 of assessable profits and 16.5% on the excess. Unincorporated businesses (sole proprietorships, partnerships) pay 7.5% on the first HKD 2,000,000 and 15% above. The maximum saving from the two-tier regime is HKD 165,000 per group per year — calculated as HKD 2,000,000 × (16.5% − 8.25%). Only ONE entity in a connected-entity group may elect the lower rate to prevent profit-splitting abuse. Last updated: 2026-05-18. Source: IRD Profits Tax Rates schedule.
Worked Example — HKD 5,000,000 Profits Corporation
A Hong Kong corporation with HKD 5,000,000 of assessable profits and Two-Tier nomination: Tier 1: HKD 2,000,000 × 8.25% = HKD 165,000. Tier 2: HKD 3,000,000 × 16.5% = HKD 495,000. Total before reduction: HKD 660,000. After 2027 reduction (HKD 1,500): HKD 658,500. Flat 16.5% rate would have been HKD 825,000 — so the two-tier regime saves HKD 165,000. Provisional tax for 2028 is set at the same HKD 660,000 (paid in two instalments: 75% in Nov 2027, 25% in Jan 2028). Effective rate on HKD 5M profits: 13.2%.
Connected-Entity Nomination — A Critical Pitfall
A connected-entity group cannot have multiple companies all enjoying the 8.25% Tier 1 rate. The group must nominate ONE entity via Form IR1487. Common mistakes: (1) Two sister companies each claiming the lower rate — IRD raises additional assessments. (2) Failing to file the nomination form on time — defaults to the highest-profit entity. (3) Switching the nomination annually without considering long-term profit projections. The two-tier election is binding for the year of nomination but can be changed in subsequent years. Group structures with multiple loss-making subsidiaries should consider whether nomination of a particular profitable entity actually saves group-wide tax.
Reducing Your Effective Rate Further
Strategies to reduce the 2027 effective rate: (1) R&D super deduction — 300% deduction on qualifying R&D Type B expenditure capped at HKD 2M. (2) Environmental tax incentives — 100% deduction in year of purchase for environmental machinery and installations. (3) Intellectual property tax regime — concessionary 5% rate on qualifying patent royalty income from local R&D. (4) Concessionary 0% rate on shipping and aircraft leasing under specific schemes. (5) Donation deduction up to 35% of adjusted assessable profits. (6) Carry-forward of unutilised losses indefinitely. The combination of two-tier base rate plus targeted incentives keeps HK's effective corporate tax among the lowest in Asia.