Hong Kong SAR

Corporate - Branch income

Last reviewed - 31 December 2020

The two-tiered tax rates regime that is applicable to corporations is also applicable to branches of foreign corporations in Hong Kong SAR.

Under the Inland Revenue Rule 5 (IRR 5), the Hong Kong sourced profit of a Hong Kong branch of a foreign corporation, other than a financial institution, is determined according to the accounts maintained for the Hong Kong operation (or business). If the Hong Kong accounts do not disclose the true profits arising in or derived from Hong Kong SAR attributable to the Hong Kong operation, the Hong Kong profit of the branch for profits tax purposes will be computed according to the ratio of turnover in Hong Kong SAR to total turnover (or the proportion of Hong Kong assets over total assets) on the worldwide profits. Alternatively, the Hong Kong Inland Revenue Department (HKIRD) tax assessor may estimate the profits of the Hong Kong branch. In certain situations, the profits of the Hong Kong branch can be estimated based on a fair percentage of the turnover in Hong Kong SAR.

Effective from the year of assessment 2019/20, the Authorized OECD Approach (i.e. the separate enterprises principle) (TP Rule 2) needs to be adopted for attributing income or loss to a PE of a non-Hong Kong resident person in Hong Kong SAR. With the new TP Rule 2, the IRR 5 mentioned above will have effect only to the extent that it is not inconsistent with TP Rule 2.