A discount every company must ask for, capped once per group

The mechanics are simple for a standalone company. A company with HK$3 million of assessable profits pays 8.25% on the first HK$2 million (HK$165,000) and 16.5% on the remaining HK$1 million (HK$165,000), for total tax of HK$330,000 — against HK$495,000 if the full amount were taxed at the standard 16.5% rate. That’s the maximum the two-tiered regime can save any single taxpayer: HK$165,000 a year. What catches companies out is that the discount isn’t automatic just because a company qualifies for it. Inland Revenue Department guidance confirms that even a company with no connected entities has to declare in its Profits Tax Return that it is chargeable at the two-tiered rates.

The one-per-group cap is where it gets stricter. Two entities are “connected” if one holds, directly or indirectly, more than 50% of the other’s shares, voting rights or entitlement to profits, or if both are held that way by the same parent or individual. That definition catches sister companies under common ownership even when neither holds shares in the other, and it treats a sole proprietor’s separate unincorporated businesses as connected to each other too. Only one entity in that connected group may elect the two-tiered rates for a given year; every other connected entity pays the standard 16.5% (or 15%, for unincorporated businesses) on the whole of its profits that year, not just the amount above HK$2 million.

The nominated entity makes the election by declaring, in its own Profits Tax Return, that it is chargeable at the two-tiered rates and that no other connected entity has elected the same treatment for that year. Once filed, that election is irrevocable for the year of assessment it covers — but it isn’t a permanent choice for the group. A different connected entity can be nominated in a later year’s return, which is worth revisiting whenever profits shift between group companies, since the saving is only worth the full HK$165,000 if the nominated entity actually earns at least HK$2 million that year.

For a group with several Hong Kong entities, VIVOS Corporate Services (HK) Ltd. reviews profit forecasts across the group before each return is due, so the election lands on the entity that will actually use it in full, and is filed correctly and on time.

Where the new global minimum tax fits in

Hong Kong’s Pillar Two rules — the Income Inclusion Rule and the Hong Kong Minimum Top-up Tax — took effect for accounting periods beginning on or after 1 January 2025, but they only reach multinational enterprise groups with global annual revenue of at least EUR750 million. For every other Hong Kong business, the two-tiered profits tax rates above remain the whole story.