Groups preparing to handle tax compliance for multinational enterprises in Hong Kong need to be aware of the new requirements under Pillar Two of BEPS 2.0 in recent years. Hong Kong’s Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Ordinance 2025 came into effect on June 6, 2025; Hong Kong’s global minimum tax and the Hong Kong Minimum Top-up Tax (HKMTT) apply to relevant fiscal years beginning on or after January 1, 2025.
This article provides general information intended to help readers gain a basic understanding of the system and organize their internal preparations; it does not constitute tax, accounting, or legal advice for any specific group. Whether a group is covered, how the effective tax rate is calculated, whether safe harbor provisions apply, and specific reporting obligations should be assessed on a case-by-case basis, taking into account the group’s structure, financial data, and the latest official guidelines.
What is Pillar 2 of BEPS 2.0?
Pillar Two is based on the Global Anti-Base Erosion Rules (GloBE Rules) and aims to ensure that covered multinational enterprise groups achieve an effective tax rate of at least 15% on relevant profits in each tax jurisdiction where they operate. The system primarily operates through the Inter-jurisdictional Income Rule (IIR) and the Under-Taxed Profits Rule (UTPR); Hong Kong has also established a Hong Kong Minimum Top-up Tax to prioritize the collection of top-up tax from low-tax member entities in Hong Kong under qualifying circumstances.
This is not the new 15% corporate tax imposed on typical local small and medium-sized enterprises (SMEs) in Hong Kong. The system applies only to multinational corporate groups that meet the thresholds; according to the Hong Kong government’s public statement, the vast majority of corporate taxpayers—including local SMEs—are not expected to be affected.
Which groups might fall within the scope of coverage?
To qualify, multinational enterprise groups generally must have had consolidated revenue of 750 million euros or more in at least two of the four fiscal years immediately preceding the current fiscal year. If a group prepares its consolidated financial statements in a currency other than the euro, the Hong Kong Inland Revenue Department has clarified the exchange rate method to be used when converting the threshold amount.
Companies should first verify the following: whether the group operates across multiple countries; whether it has met the threshold of 750 million euros in consolidated revenue for at least two of the past four years; whether there are group entities, joint ventures, or permanent establishments in Hong Kong; and whether the effective tax rates in each jurisdiction need to be reassessed. The GloBE regime uses a jurisdiction-based effective tax rate calculation rather than relying solely on a single company’s nominal tax rate.
Why Is the Minimum Top-Up Tax in Hong Kong Important?
If the effective tax rate of a covered group in Hong Kong is lower than 15%, the design of Hong Kong’s minimum top-up tax allows Hong Kong to collect the relevant top-up tax on a priority basis, rather than having other jurisdictions collect it under their own rules. The Hong Kong Inland Revenue Department also notes that the Hong Kong minimum top-up tax is designed to meet the requirements of a qualifying local minimum top-up tax; where conditions are met, a group may be able to utilize the relevant safe harbor to reduce the need to perform a full GloBE calculation in Hong Kong.
However, the effective tax rate is not equivalent to dividing a Hong Kong company’s profits tax by its book profit. GloBE calculations involve concepts such as group-level data, adjusted tax coverage, GloBE income or loss, and substantive income exclusions. Companies should not assume, simply because Hong Kong’s general profits tax rate is lower than 15%, that they will definitely be required to pay additional tax or that they will definitely not be affected.
Important Dates and Electronic Filing Arrangements to Note at This Time
On January 19, 2026, the Hong Kong Inland Revenue Department launched the first phase of the Pillar 2 website, enabling Part 4AA entities within covered groups to electronically file supplementary tax notices for fiscal years beginning on or after January 1, 2025.
Notices for additional tax must be filed within 6 months after the last day of the reporting fiscal year. Returns for additional tax are generally filed within 15 months after the last day of the reporting fiscal year; this period is extended to 18 months for the first transitional year. The Phase 1 Pillar II website is now open for the submission of supplementary tax notices; please refer to the latest announcements from the Inland Revenue Department for details regarding the electronic platform and filing arrangements.
The actual reporting obligations may be handled by a designated local entity and involve the Group’s Global Anti-Base Erosion Report (GIR) and information exchange arrangements. The group should identify early on who will be responsible for coordinating data collection, reviewing, and filing to avoid having to begin organizing the data only as the notification or filing deadline approaches.
What steps can companies take to prepare in the meantime?
The first step is to conduct a cross-departmental data inventory. Personnel from the tax, financial reporting, legal, corporate secretarial, and information systems departments typically need to jointly confirm the ultimate parent entity, Hong Kong entities, entities in other jurisdictions, the fiscal year, consolidated income, and existing country-by-country reporting or group tax filing procedures.
The second step is to establish a verifiable timeline. Even if the Group’s preliminary assessment indicates that it may not be covered, it should retain the basis for the threshold assessment; if the Group is likely to fall near the threshold, is undergoing restructuring, or holds overseas investments through Hong Kong, it should confirm the availability of data for subsequent years as early as possible.
The third step is to clarify the division of responsibilities. Hong Kong member entities may, in accordance with regulations, designate a local entity to handle certain notification or reporting arrangements; however, such a designation does not mean that other Hong Kong entities are completely exempt from monitoring group information or fulfilling their obligations. The actual arrangements should be confirmed by professionals familiar with the group structure in accordance with official regulations.
FAQ
Will Hong Kong’s small and medium-sized enterprises (SMEs) necessarily be affected? Not necessarily. Pillar 2 primarily targets multinational corporate groups that meet the threshold. Businesses that operate solely within Hong Kong and do not meet the threshold are generally not directly subject to these requirements; however, if a business is part of a large multinational group, the determination should still be made based on data at the group level.
If Hong Kong’s profits tax rate is lower than 15%, does that necessarily mean there will be a top-up tax? Not necessarily. Under Pillar 2, the effective tax rate is calculated based on the jurisdiction under the GloBE framework, taking into account factors such as adjusted tax, income, exclusions, and safe harbors. One cannot draw conclusions based solely on the standard profits tax rate.
Has the UTPR already taken effect in Hong Kong? According to current guidance from the Hong Kong Inland Revenue Department, the effective date of the Under-Taxed Profits Rule will be specified at a later date by the Secretary for Financial Services and the Treasury. Therefore, businesses should refer to the latest official announcements.
Next Step
If your company is part of a multinational group, or if you are assessing the role of your Hong Kong entity within the group, you should first determine whether the scope thresholds are met and whether the necessary documentation is in order. Qihang Business Services Limited can first discuss with you the general scope of services and guidelines for document preparation; however, for matters involving the calculation of supplementary tax, filing obligations, or cross-border arrangements specific to individual groups, you should seek appropriate professional advice on a case-by-case basis.
References
Hong Kong Inland Revenue Department, “Global Minimum Tax and Hong Kong Minimum Top-up Tax for Multinational Enterprise Groups”: https://www.ird.gov.hk/chi/tax/bus_beps.htm
Hong Kong Special Administrative Region Government Press Release “Government Launches Consultation on Implementing the Global Minimum Tax and Minimum Top-Up Tax in Hong Kong”: https://www.info.gov.hk/gia/general/202312/21/P2023122100210.htm
