What is the Global Minimum Tax?
The Global Minimum Tax is a landmark international agreement, the implementation of Pillar Two’s rules of the Base Erosion and Profit Shifting (BEPS) 2.0 initiative. In 2021, over 130 countries, including Hong Kong, signed on to this agreement to prevent large multinational companies from shifting profits to low-tax jurisdictions to minimize their tax liabilities. This initiative addresses the challenge of large corporations taking advantage of jurisdictions with very low or no taxes to reduce their tax bills in their home countries.
What is Hong Kong’s Implementation of the Global Minimum Tax Called?
Each signatory country is expected to draft a localised version of Pillar Two rules. Hong Kong’s version of the global minimum tax is known as the Hong Kong Minimum Top-Up Tax (HKMTT), and was enacted through the Inland Revenue Ordinance 2025, and gazetted on June 6, 2025.
Who will be affected by the Hong Kong Minimum Top-up Tax?
The HKMTT applies to MNE groups with consolidated annual revenues of €750 million or more for at least two of the four preceding fiscal years, including entities held under joint venture structure, and regardless of ownership interest.
It is important to note that Hong Kong already has a two-tiered profits tax system, with rates of 16.5% for companies with annual profits over HKD 2 million, more than the 15% global minimum tax rate. As a result, MNEs headquartered in Hong Kong are unlikely to be affected by the new rule. However, MNEs based in jurisdictions outside of Hong Kong with lower or no taxes that also have operations in Hong Kong will be required to pay the top-up tax to the Hong Kong government.
How is the HKMTT’s Global Minimum Tax Implemented?
The HKMTT’s global minimum tax is enforced through two main rules, collectively known as the GloBE (Global Anti-Base Erosion) Rules:
- Income Inclusion Rule (IIR): If a subsidiary of a company is taxed at a rate below 15% in a particular country, the parent company’s home country can charge an additional tax to make up the difference. This rule will also prevent double-taxation.
- Undertaxed Profits Rule (UTPR): This backstop rule says that if the IIR does not fully capture all the undertaxed profits, the UTPR ensures that the remaining top-up tax is collected.
How do MNEs Stay Compliant with the New Pillar Two Rules?
To comply with the new regulations, relevant MNE groups must adhere to the following requirements:
- Annual Top-Up Tax Notification: A notification must be filed online to the IRD within six months after the end of the fiscal year. For example, for a calendar year-end group, this would be June 30, 2026.
- Annual Top-Up Tax Return: The top-up tax return must also be filed online within 15 months after the end of the fiscal year, extended to 18 months for the transitional year.
- Notice of Assessment: A notice of assessment and a demand for the top-up tax will be issued to the MNE based on the submitted return, where the top-up tax is generally due one month after the date of the notice.
- Designated Entities: An MNE group can appoint one of its Hong Kong entities to handle the filing of the top-up tax notification and return, and it can also designate one or more entities to be responsible for paying the top-up tax.
Note that the IRD will notify MNEs that fill out the Top-Up Tax Notification to e-file their annual profits tax return filings going forward.
Compliance Example
A foreign MNE based in a jurisdiction with taxes of 10% has operations in Hong Kong. Their fiscal year ends on March 31, 2026. To comply with the new rules, they would need comply with the following rules:
- File a Top-Up Tax Notification: The MNE must file its annual top-up tax notification online with the Hong Kong Inland Revenue Department (IRD) by September 30, 2026, six months after their fiscal year-end.
- File an Annual Top-Up Tax Return: They must then file their annual top-up tax return online by June 30, 2027 (15 months after their fiscal year-end). Even if the MNE only has non-profit generating operations in Hong Kong, they must still file the top-up tax notification and annual top-up tax return to the IRD.
- Pay Top-Up Tax: After the IRD issues a notice of assessment, the MNE will have one month to pay the assessed top-up tax.
Conclusion
For most companies in Hong Kong, the new rules won’t have any effect as Hong Kong companies already pay a comparatively higher tax. MNEs that have profit-generating operations in Hong Kong however, will have to play by the new rules and pay the global minimum tax. Hong Kong remains one of the best places in the world to establish your company and grow your business. If you have questions we didn’t clarify here, drop us a message and we’d be happy to talk!
