Business expenses in Hong Kong 2026: what your business can deduct

Last reviewed: November 2026 · Reviewed by Stéphane Gombauld, tax expert, technologist and digital nomad

You run a Hong Kong limited company, a partnership or a sole proprietorship. You want to know what comes off your profits before the 8.25%, 7.5% or 16.5% rate applies. This guide gives you the 2026/27 deduction rules, the allowance rates and the mistakes the Inland Revenue Department (IRD) picks up.

Hong Kong business expenses in 2026: the key figures

What changed for 2026

The deduction rules for businesses are unchanged from 2025/26. The 2026-27 Budget tax measures did change two things around them:

• One-off profits tax reduction for 2025/26. 100% of the tax, capped at HKD 3,000 per business, applied automatically by the IRD. Nothing has been legislated for 2026/27.
• Higher personal allowances from 2026/27. The basic allowance rises to HKD 145,000. It matters to sole traders who elect personal assessment, as shown below.

Is this guide for you?

Read on if you…

• run a Hong Kong company or unincorporated business and prepare your own accounts;
• work from home or a co-working space and wonder which costs the IRD accepts;
• bought equipment, software or a car this year and want the allowances right.

Probably not your case if you…

• are an employee claiming expenses against your salary (see personal tax deductions and benefits of Hong Kong);
• have no Hong Kong-sourced profits (there is nothing to deduct against).

What makes an expense deductible in Hong Kong?

Section 16 of the Inland Revenue Ordinance (IRO) allows outgoings and expenses to the extent they are incurred in producing profits chargeable to profits tax. Section 17 then lists what is excluded. Three tests follow:

1. Business purpose. The cost must serve your taxable business. A client meeting qualifies; a family dinner does not.
2. Revenue, not capital. Running costs come off straight away. Buying a fixed asset is capital, so it goes through depreciation allowances instead.
3. Chargeable profits only. If part of your profit is offshore and not taxed, the related costs do not come off your taxable profit.

Good news: the test is the same for a one-person consultancy and a listed group. The IRD's guide for unincorporated businesses gives rent, utilities and staff salaries as typical operating expenses.

Commonly deductible costs

• Rent and rates of business premises, including a co-working desk.
• Staff salaries and bonuses, plus employer MPF contributions up to 15% of each employee's emoluments.
• Your own mandatory MPF contributions as a self-employed person, up to the prescribed amount (HKD 18,000 a year).
• Accounting, audit, company secretarial and legal fees.
• Marketing, software subscriptions, hosting and business travel.
• Approved charitable donations of at least HKD 100, capped at 35% of assessable profits.
• Interest on business borrowings, subject to strict conditions in s.16(2).

Never deductible

The IRD leaflet lists these, among others:

• Domestic and private expenses: your meals, medical costs, and the private share of utilities or car costs.
• Payments to the sole proprietor or partners: own salary, interest on capital, drawings.
• Capital expenditure, such as buying fixed assets or premises (allowances apply instead).
• Taxes under the IRO, except salaries tax you pay for employees.
• Voluntary MPF contributions for yourself, and any contributions for your spouse.

How do depreciation allowances work in 2026/27?

Hong Kong does not let you expense a fixed asset. It gives depreciation allowances, which are generous by international standards.

The IRD's own examples: air-conditioning plant falls in the 10% pool, furniture in the 20% pool and motor vehicles in the 30% pool.

Here's the catch on the 100% write-off. It excludes leased items and items on hire purchase. If you later sell an asset for more than its tax written-down value, the excess is a balancing charge added back to profits. Keep a fixed-asset register from day one.

Can you deduct a home office, a car and your phone?

Yes, for the business share, and you must show how you split it.

• Home office. Where premises serve both business and home, the private share of rates, electricity and water is not deductible. Use floor area or hours of business use, and apply the same key every year.
• Car. Only the business share of running costs and allowances counts. In the IRD's own example, two-thirds business use allowed HKD 40,356 of HKD 60,534 in running costs. A logbook is your evidence.
• Phone and internet. Apply a documented business-use percentage.

If you run your Hong Kong company from another country, the bigger risk is not a disallowed bill. It is that the company may be managed and controlled abroad. See tax treaties of Hong Kong and legal forms of business in Hong Kong.

What about R&D, losses and payments abroad?

Research and development

The IRD's DIPN 55 on R&D explains s.16B. Type B expenditure gets 300% on the first HKD 2 million and 200% on the rest, with no cap. Type B means in-house R&D wholly carried on in Hong Kong, or payments to a designated local research institution. Type A expenditure, including R&D carried on abroad, gets 100%.

Losses

Trading losses carry forward without time limit against future profits; there is no carry-back. Capital losses are not deductible.

Royalties paid abroad

Royalties paid to a non-resident for IP used in Hong Kong remain deductible if they serve your taxable profits. But the IRD FAQ for companies incorporated outside Hong Kong deems 30% of the payment to be the recipient's profit, or 100% if the recipient is an associate. You must withhold enough to pay that tax. For a corporate recipient on the full rate, that is 16.5% × 30% = 4.95% of the payment.

Expenses by business form

Rates and filing are in corporate income tax in Hong Kong.

Common mistakes (and what they cost)

• Deducting your own salary as a sole proprietor → the IRD adds it back, and an incorrect return can lead to additional tax.
• Expensing a leased laptop → no 100% write-off for leased items; the deduction is lost or deferred.
• Claiming costs of offshore profits → those costs are not deductible against taxable profits; a mismatch invites an enquiry into your offshore claim.
• No fixed-asset register → balancing charges on disposals are missed and allowances cannot be proved.
• Paying royalties abroad without withholding → you must withhold the tax due on the deemed 30% profit; the IRD pursues the payer.

Frequently asked questions

Can I deduct 100% of a computer purchase in Hong Kong?

Yes. Computer hardware and software are prescribed fixed assets. Their full cost is written off in the year of purchase if your business owns and uses them to earn taxable profits. Leased items and hire-purchase items are excluded. If you later sell the asset, the proceeds come back as a balancing charge, up to the allowances you claimed.

Are entertainment expenses deductible in Hong Kong?

Yes, when incurred to produce taxable profits, under the general s.16 IRO test. Private meals, including your own lunch, are excluded under s.17 as domestic or private expenses. Record the date, the guests and the business purpose for each client meal; that is what the IRD asks for in an enquiry.

How long can I carry forward a business loss in Hong Kong?

Indefinitely. Trading losses are carried forward against future assessable profits with no time limit. Hong Kong allows no carry-back, so a loss year never produces a refund of past tax. Capital losses are not deductible. Keep the loss computation with your records, because the IRD checks it when you use it.

Is my own MPF contribution deductible as a sole trader?

Yes, the mandatory part. A self-employed person can deduct the mandatory contributions made for himself under profits tax, up to the prescribed HKD 18,000 for 2026/27. Voluntary contributions above that, and any contributions for a spouse, are not deductible. For employees, employer contributions are deductible up to 15% of their emoluments.

Can I deduct expenses if my profits are offshore?

Only expenses tied to your Hong Kong-sourced, chargeable profits come off your taxable profit. Costs of earning offshore profits are not deductible, and mixed costs must be split. If you claim offshore status, expect the IRD to ask where each cost arose and which income it served.

How long must I keep receipts in Hong Kong?

At least seven years. Section 51C IRO requires every business to keep sufficient records of income and expenditure in English or Chinese. Failure without reasonable excuse can mean a fine of up to HKD 100,000. Invoices and receipts showing supplier, date, amount and purpose are the standard evidence.

Related guides

• Corporate income tax in Hong Kong – two-tiered rates, source rules and filing dates.
• Legal forms of business in Hong Kong – company, partnership or sole proprietorship.
• Personal tax deductions and benefits of Hong Kong – what you claim personally.
• Tax fraud regulations of Hong Kong – penalties for over-claimed deductions.
• Tax landscape overview of Hong Kong – every Hong Kong tax in one page.
• Business expenses in the Philippines and business expenses in Indonesia – regional comparison.
• All country tax guides

Sources

• Profits tax guide for unincorporated businesses (PAM 57) – Inland Revenue Department
• DIPN 55: Deduction for R&D expenditure – Inland Revenue Department
• Record keeping – Inland Revenue Department
• MPF deductions FAQ – Inland Revenue Department
• FAQ for companies incorporated outside Hong Kong – Inland Revenue Department
• 2026-27 Budget – Tax Measures – Inland Revenue Department
• Hong Kong SAR – Corporate deductions – PwC Worldwide Tax Summaries (secondary)

This guide is general information, not personalised tax advice. See how we research and review.