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.
Frequently Asked Questions
What are the two-tier rates in 2027?
Corporations: 8.25% on first HKD 2M, 16.5% above. Unincorporated business: 7.5% on first HKD 2M, 15% above. Same as 2018/19 onwards.
Can my group claim two-tier for multiple companies?
No. Only ONE company in a connected-entity group can elect the two-tier lower rate. The group must file Form IR1487 to nominate the chosen entity.
What is the maximum two-tier saving?
HKD 165,000 per group per year for corporations (2M × 8.25% saving). HKD 150,000 for unincorporated business (2M × 7.5% saving).
When is provisional tax due?
Provisional profits tax is usually billed alongside final tax in November. Payment is split: 75% by 1 January and 25% by 30 April of the following year.
Are foreign-sourced profits taxable?
Hong Kong operates a territorial tax system. Only profits arising in or derived from Hong Kong are taxable. Pure offshore profits are exempt, subject to the FSIE refinement from 2023.
How are unutilised losses treated?
Losses carry forward indefinitely against future profits of the same trade. There is no loss carry-back. Loss utilisation by group companies is generally not allowed except in narrow IPO/restructuring situations.