Hong Kong does not levy VAT, GST or capital gains tax. Yet freelancers and sole proprietors still pay profits tax on their Hong Kong-sourced business income.
In this blog, we explain freelancer taxes for sole proprietors in Hong Kong. It also covers:
- two-tier profits tax rates for 2025/26 and 2026/27;
- business registration fees and exemptions from 1 April 2026;
- allowable deductions and filing deadlines; and
- when a limited company may make sense.
Which freelancer taxes apply to sole proprietors in Hong Kong?
Most freelancers pay profits tax on business income rather than salaries tax, while Hong Kong imposes no VAT, GST or capital gains tax.
Understanding freelancer taxes in Hong Kong begins with the Inland Revenue Ordinance (Cap. 112), which the Inland Revenue Department (IRD) administers. The ordinance provides for three direct taxes: profits tax on business income, salaries tax on employment income, and property tax on rental income.
A freelancer who operates as a sole proprietor is chargeable to profits tax on the profits of that trade. This is the default structure when one person trades under a business name. Where an engagement is genuinely a contract of service, the IRD may instead assess the income under salaries tax. Fixed hours, supervision and client-provided tools similar to employment point to this treatment.
Two features of the system matter greatly for freelancers:
- There is no VAT or GST, so freelancers never collect sales tax on their invoices.
- Only profits sourced in Hong Kong are chargeable, under the territorial source principle, and the IRD assesses each case on its facts.
Business registration, administered alongside tax, is the other statutory obligation. Every registered sole proprietor receives a business registration number. It also serves as their tax identification number for dealings with the IRD and other government authorities. Mandatory Provident Fund obligations for self-employed persons are separate from freelancer taxes and are not covered in this tax overview.
How much profits tax do freelancers pay in 2026?
Sole proprietors pay 7.5% on the first HK$2 million of assessable profits and 15% on the remainder under the two-tiered rates regime.
The two-tiered profits tax rates regime, introduced for the year of assessment 2018/19, remains in force for 2025/26 and into the 2026/27 year of assessment. For unincorporated businesses such as sole proprietorships and partnerships, the first HK$2 million of assessable profits is taxed at 7.5%. Profits above that threshold are taxed at 15%.
The HK$2 million band applies to one eligible business. Where sole proprietorships are connected, only one may elect for the two-tiered rates. The others are taxed at 15%. A partnership and a sole proprietorship are connected only where the statutory control tests are met. If they are connected, only one entity may elect for the two-tiered rates. Only the first HK$2 million in aggregate enjoys the lower rate.
According to the IRD's 2026-27 Budget tax measures, profits tax for the year of assessment 2025/26 is reduced by 100%. The reduction is subject to a ceiling of HK$3,000 per case. The enabling legislation was passed by the Legislative Council on 13 May 2026 and gazetted on 22 May 2026. The IRD reflects the reduction in the final assessment for 2025/26.
Assessable profits are calculated after deducting allowable expenses and capital allowances, and losses can be carried forward to offset future profits. This is a valuable relief for freelancers whose income fluctuates from year to year.
Profits Tax Rates for Hong Kong Freelancers in 2026
| Business structure | First HK$2 million of assessable profits | Remaining assessable profits |
|---|---|---|
| Sole proprietorship or partnership (unincorporated) | 7.5% | 15% |
| Limited company | 8.25% | 16.5% |
What business registration obligations and fees apply in 2026?
A sole proprietor generally must apply for business registration within one month of starting to trade. The fee and levy are HK$2,350 for a one-year certificate from 1 April 2026. An exemption from payment may apply.
Business registration is a legal requirement for carrying on any trade in Hong Kong, distinct from any industry-specific licences. According to the IRD, a sole proprietor must apply for business registration within one month from the date of commencement of business. Registration can be completed by post, in person at the Business Registration Office, or online through eTAX. The IRD may issue backdated demand notes covering the whole period the business operated unregistered.
The Business Registration Ordinance also provides an exemption from payment of business registration fee and levy for very small businesses, which we outline below.
1. When you must register
The one-month clock starts when the business commences, not when it first issues an invoice. Late applicants are still registered from the latest anniversary of commencement, with fees demanded retrospectively. In one IRD illustration, demand notes covered three full years of overdue registration.
2. What you pay in 2026
From 1 April 2026, the total payable is HK$2,350 for a one-year certificate and HK$6,170 for a three-year certificate. Each amount includes the registration fee and the Protection of Wages on Insolvency Fund levy. The temporary waiver expired on 31 March 2026. The levy then reverted to HK$150 for one year and HK$450 for three years.
3. Fee exemption for very small businesses
The IRD exempts businesses with modest turnover from the fee and levy. Service businesses with average monthly sales of HK$10,000 or less, and other businesses averaging HK$30,000 or less, can apply using Form 3. A sole proprietor running two sole proprietorships at the same time loses eligibility. An existing business must file roughly one month before its current certificate expires.
Business Registration Costs for Sole Proprietors from 1 April 2026
| Certificate period | Registration fee | Levy | Total payable |
|---|---|---|---|
| 1 year | HK$2,200 | HK$150 | HK$2,350 |
| 3 years | HK$5,720 | HK$450 | HK$6,170 |
Which expenses can freelancers deduct from assessable profits?
Expenses wholly and exclusively incurred in producing chargeable profits are deductible, from subcontractor fees to software subscriptions.
Profits tax is charged on assessable profits, meaning gross income minus allowable deductions. Section 16 of the Inland Revenue Ordinance sets the core test. The expense must be incurred in the production of chargeable profits. It must not be of a capital or private nature. In practice, we help clients classify their costs so legitimate deductions are claimed while private spending is clearly separated.
1. Operating expenses
Payments that pass the test include:
- subcontractor fees
- advertising
- bank charges
- professional subscriptions
- software and cloud services
- business travel
- bad debts proven to be irrecoverable.
Ordinary revenue costs are deducted in full in the year they are incurred.
2. Equipment and premises
Computer hardware and software qualify for a full deduction in the basis period in which the expenditure is incurred. Cameras and other plant and machinery may qualify for capital allowances. A home studio or dedicated workspace can support a proportionate claim for rent, utilities and repairs, provided the space is genuinely used for the business.
3. Record-keeping for seven years
The IRD requires sole proprietors to keep sufficient business records in English or Chinese for at least seven years after the relevant transactions. Invoices, receipts, bank statements and mileage logs should be stored systematically, ideally digitally, so a records review or query can be answered quickly.
What are the filing and payment deadlines for sole proprietors?
For 2025/26, the IRD issued Tax Return – Individuals (BIR60) on 4 May 2026. Sole proprietors had until 4 August 2026 to file on paper. They had until 4 September 2026 when filing electronically.
For 2025/26, sole proprietors reported business profits in BIR60. The IRD set the paper-filing and electronic-filing deadlines shown in the table below. However, the exact due dates and any provisional-tax instalment dates are set by the IRD notice. They can differ from this usual schedule. Late filing invites penalties, and a missing return can trigger an estimated assessment with no deductions allowed.
1. Annual return and supporting information
Alongside the return, the IRD may request a statement of assets and liabilities and supporting accounts. Freelancers should reconcile declared income with bank deposits before filing, because mismatches frequently lead to queries.
2. Provisional tax
The IRD collects the coming year's tax in advance through provisional tax, usually payable in two instalments around January and April of the following year. When income falls, a holdover application can reduce the provisional charge.
3. Personal assessment election
A freelancer who also has employment income may elect personal assessment, which combines business profits with salary income and applies allowances and progressive rates. The election must be lodged within the prescribed period after the year of assessment ends.
Key Tax Deadlines for Hong Kong Sole Proprietors
| Obligation | Timing |
|---|---|
| Business registration | Within one month of commencement of business |
| Profits tax return filing | Tax Return – Individuals (BIR60) issued in early May (4 May 2026 for 2025/26); sole proprietors file within three months (4 August 2026), or by 4 September 2026 when filing electronically |
| Provisional tax payments | Typically two instalments in January and April of the following year |
| Business record retention | At least seven years after the relevant transactions |
Should a freelancer incorporate a Hong Kong limited company?
Incorporation suits freelancers with higher profits or contract risk, accepting a slightly higher profits-tax rate above HK$2 million in exchange for limited liability protection.
A limited company pays 8.25% on its first HK$2 million of profits and 16.5% above, alongside the benefit of limited liability protection for personal assets. The comparison is not purely about rates. A company must file annual returns with the Companies Registry. It must also maintain statutory registers and observe corporate compliance obligations. The HK$2 million band is shared across a group of associated companies.
Set-up costs are modest. According to the Companies Registry, delivering an incorporation application electronically costs HK$1,545 for a company limited by shares. For a private company limited by shares, certificates are normally issued within about one hour through the e-Services Portal.
Before converting, freelancers should weigh three practical steps:
- Check the name first, because a free company name check confirms the proposed English and Chinese names are not already taken.
- Review the timeline, since understanding how long it takes to register a company in Hong Kong helps plan a clean transition between structures.
- Obtain advice on the tax point, as shifting a sole proprietorship to a company mid-year affects how income is split across two assessment regimes.
Our Hong Kong company incorporation services cover the transition end to end, including business registration for the new entity and corporate secretarial support thereafter.
Conclusion
Hong Kong freelancers and sole proprietors pay profits tax at two-tiered rates of 7.5% and 15%. Annual business registration costs HK$2,350 for a one-year certificate from April 2026. For most freelancers, nothing else of comparable weight applies. Salaries tax, property tax or industry-specific obligations may apply in different circumstances. The city has no VAT, GST or capital gains tax. The 2025/26 one-off reduction capped at HK$3,000 per case is reflected in the final assessment.
The discipline that protects freelancers is routine:
- register within one month of starting to trade;
- keep records for seven years;
- deduct only expenses that genuinely produced chargeable profits; and
- file the BIR60 return by the deadline shown on the IRD notice.
As a Corporate Services Provider, 3E Accounting Hong Kong supports freelancers and sole proprietors. We handle business registration, bookkeeping, profits tax filings and, when the time comes, incorporation of a Hong Kong limited company. Contact us to put your tax affairs on a professional footing.
Put your freelance tax affairs in order
3E Accounting Hong Kong handles business registration, profits tax filings and record-keeping for freelancers, sole proprietors and growing businesses.
Frequently Asked Questions
No. Hong Kong does not impose VAT, GST or any sales tax, so freelancers do not add tax to invoices or file sales tax returns.
The IRD registers the business from the latest anniversary of commencement and issues backdated demand notes covering the period it operated unregistered, which can span up to three years of fees.
Yes, if the space is genuinely used for the business and the claim is restricted to the business proportion. The IRD applies the wholly-and-exclusively test to every deduction claimed.
Both taxes can apply. A personal assessment election combines employment income with business profits and applies allowances and progressive rates. It may reduce liability depending on allowances, deductions and overall income.
Profits are chargeable if the services are performed in Hong Kong, even when clients are overseas. Offshore treatment depends on where the profit-producing operations occur and the supporting facts, not client location alone. Services performed entirely abroad may support an offshore claim, but the IRD assesses each case strictly.
Abigail Yu
Director
Abigail Yu oversees executive leadership at 3E Accounting Group, leading operations, IT solutions, public relations, and digital marketing to drive business success. She holds an honors degree in Communication and New Media from the National University of Singapore and is highly skilled in crisis management, financial communication, and corporate communications.
