Pillar 2 Dashboard: Hong Kong

The Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024 was passed by the Legislative Council on May 28, 2025. It was published in the Official Gazette on June 6, 2025. The law is now enacted.

In April 2025, the Hong Kong Government proposed a number of Committee Stage Amendments to the Bill.

On December 27, 2024, the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024 was published in the Official Gazette. This is to introduce an IIR and QDMTT from January 1, 2025, and the UTPR from a future date to be specified. The Bill will be introduced into the Legislative Council for first reading on January 8, 2025.

On October 30, 2024, the Hong Kong government released the outcome statement following the previous consultation into the introduction of the GloBE rules.

GLOBE APPLICATION

General

The Law comprehensively implements the OECD Model GloBE rules (and accompanying guidance).

The new Schedule 61 in the Inland Revenue Ordinance (IRO) effectively reproduces the OECD Model Rules, with some minor amendments.

Schedule 62 includes the provisions for the design and application of the DMTT (referred to as Hong Kong minimum top-up tax or ‘HKMTT’).

Schedule 63 contains the provisions on the administration of the IIR top-up tax and HKMTT including requirements for the filing of returns and payment of top-up tax.

Therefore, unlike some other jurisdictions (eg Switzerland) that directly transpose the OECD Model Rules and guidance by a static reference to the OECD Model Rules, Hong Kong reproduces the OECD Model Rules in domestic law. It also provides that the OECD Commentary and Administrative Guidance is to be given effect to supplement and clarify the interpretation and operation of the GloBE Model Rules.

The explanatory notes to the Bill also provided that future changes to the OECD Commentary and Administrative Guidance will be incorporated into the IRO through subsidiary legislation so as to allow swift adoption.

Given that Hong Kong adopts a territorial source principle of taxation and does not impose tax based on an entity’s residence, the IRO does not contain a definition of “resident” for general purposes. Given the residence of an entity is of key importance under the GloBE rules to determine whether an entity is located in Hong Kong for top-up tax purposes, the Law includes a definition of “Hong Kong resident entity”.

It provides that an entity is a tax resident in Hong Kong if:

(a) where an entity is a company: the entity is incorporated in Hong Kong or, if incorporated outside Hong Kong, normally managed or controlled in Hong Kong; or

(b) in any other case: the entity is constituted under the laws of Hong Kong or, if otherwise constituted, normally managed or controlled in Hong Kong.

This definition will take retrospective effect from January 1, 2024.

Administrative Guidance

Section 26AF of the Law provides that the application of the GloBE rules in Hong Kong (including Schedule 61 which reproduces the GloBE model rules) is to be construed in accordance with the ‘OECD GloBE rules guidance’ in a way that best serves the purpose of making provision for the following, within the meaning of the OECD GloBE model rules:

-a qualified HR;

-a qualified UTPR;

-a qualified domestic minimum top-up tax;

-safe harbours.

The OECD GloBE rules guidance is defined in Part 1 of Schedule 64  as including the:

-April 2024 Consolidated Commentary to the GloBE Rules

-February 2023 OECD Administrative Guidance (AG1)

-July 2023 OECD Administrative Guidance (AG2)

-December 2023 OECD Administrative Guidance (AG3)

-June 2024 OECD Administrative Guidance (AG4)

-April 2024 Examples to the Model Rules

The April 2025 amendment to the Bill also includes the:

-January 2025 OECD Central Record of Legislation with Transitional Qualified Status

-January 2025 OECD Administrative Guidance on Article 8.1.4 and 8.1.5 of the Model Rules

-January 2025 OECD Administrative Guidance on Article 9.1 of the Model Rules

-January 2025 OECD Guidance on the GloBE Information Return

-March 2025 update to the OECD Central Record of Legislation with Transitional Qualified Status

Each of these is to be taken into account for GloBE purposes in Hong Kong from January 1, 2025.

Therefore, all aspects of the OECD Administrative Guidance to date should be applied in Hong Kong.

Nevertheless, the Law includes various notes that covers the application of the OECD Administrative Guidance (up to and including AG3). Whilst these notes are provided for information only and have no legislative effect, they do support the application of the OECD Administrative Guidance for specific aspects of the Model GloBE Rules.

This includes:

-Deemed consolidation test (Article 1.2);

-Consolidated deferred tax amounts (Article 1.3);

-Sovereign wealth funds and the definition of Ultimate Parent Entity (Article 1.4);

-Clarifying the definition of ‘Excluded Entity’ (Article 1.5);

-Meaning of “ancillary” for Non-Profit Organisations (Article 1.6);

-Forex hedge election (Article 2.2);

-Debt release election (Article 2.4);

-Accrued Pension Expenses (Article 2.5);

-Covered Taxes on deemed distributions (Article 2.6);

-Excess negative tax carry-forward guidance (Article 2.7);

-Substitute Loss carry forwards (Article 2.8);

-Equity gain or loss inclusion election (Article 2.9);

-Allocation of taxes arising under a Blended CFC Tax Regimes (Article 2.10), as well as the AG3 amendments;

-Application of Article 7.6 to Insurance Investment Entities (Article 3.1); 

-Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2);

-The extension of Additional Capital to include Restricted Tier One Capital (Article 3.3);

-Liabilities related to Excluded Dividends and Excluded Equity Gain or Loss from securities held on behalf of policyholders (Article 3.4);

-Simplification for Short-term Portfolio Shareholdings (Article 3.5);

-Application of Tax transparency election to Mutual insurance companies (Article 3.6);

-Deferred Tax Transition Rules (Article 4);

-Currency conversion rules (Article 1 Second Set of OECD Administrative Guidance);

-Tax Credits Guidance (MTTCs) (Article 2 Second Set of OECD Administrative Guidance);

-SBIE Rules;

-Foreign rules (Article 3 Second Set of OECD Administrative Guidance);

-Stock-based compensation election;

-Leases (Article 3 Second Set of OECD Administrative Guidance).

Safe Harbour and Penalty Relief Guidance

Part 3 of Schedule 61 of the Law provides for the transitional Country-by-Country Reporting (“CbCR”) Safe Harbour, the transitional UTPR Safe Harbour, the QDMTT Safe Harbour and the Simplified Calculations Safe Harbour for non-material constituent entities (“NMCEs”) so as to reduce compliance burden for in-scope MNE groups.

The Transitional CbCR Safe Harbour includes specified adjustments for the December 2023 OECD Administrative Guidance, including provisions for:

• Purchase Accounting Adjustments (consistent reporting condition, goodwill impairment adjustment);

• Same Financial Statements/Local Financial Statements for Statutory Reporting
• MNEs not required to file CbC Reports;

• Qualified Financial Statements for PEs;

• Treatment of hybrid arbitrage arrangements;

Section 20 of Part 3 of Schedule 61 of the Law provides that a jurisdiction qualifies for the QDMTT safe harbour if meets the QDMTT safe harbour standards under an OECD peer review process for that fiscal year.

The Law also outlines a number of cases where the Switch-Off Rule applies (as provided in the OECD Administrative Guidance), including:

-The QDMTT safe harbour does not apply for constituent entities of the group located in the UPE jurisdiction, if:

         -the UPE of the group is a flow-through entity; and

         -the QDMTT of the jurisdiction does not impose a charge in any circumstances on a UPE that is a flow-through entity.

-The QDMTT safe harbour does not apply for constituent entities of the group located in a jurisdiction in which an IIR applying entity of the group is located, if:

         -the IIR applying entity is a flow-through entity; and

         -the QDMTT of the jurisdiction does not impose a charge in any circumstances on an IIR applying entity that is a flow-through entity.

-The QDMTT safe harbour does not apply for constituent entities of the group located in a jurisdiction, if:

          -a QDMTT of the jurisdiction adopts the international activity exclusion that is consistent with Article 9.3 of the GloBE rules; and

          -that exclusion is not limited to the case where a qualified IIR does not apply in respect of the constituent entities located in the jurisdiction.

The Law also provides that the QDMTT safe harbour does not apply if:

-a member of the MNE group is a securitization entity participating in a securitization arrangement and is located in the jurisdiction; and

-the QDMTT in the jurisdiction does not impose a charge in any circumstances on a securitization entity.

Section 26 in Schedule 61, Division 3 also applies the amendment to the QDMTT Safe Harbour as provided by the January 2025 OECD Administrative Guidance on Article 9.1.2 of the OECD Model Rules (to apply the Switch-Off rule to jurisdictions that allow certain DTA reversals to be taken into account for adjusted covered taxes).

ELECTIONS

Elections in the OECD Model Rules

All of the elections included in the OECD Model Rules are provided in the Law, including:

-Excluded Entity Election (Article 1.5.3 of the Law)

-Stock-Based Compensation Election (Article 3.2.2 of the Law)

-Election to use the Realization Method (Article 3.2.5 of the Law)

-Election to Spread Capital Gains (Article 3.2.6 of the Law)

-Consolidation Election (Article 3.2.8 of the Law)

-Unclaimed Accrual Election (Article 4.4.7 of the Law)

-GloBE Loss Election (Article 4.5.1 of the Law)

-Prior Year Adjustment Election (Article 4.6.1 of the Law)

-De-minimis Election (Article 5.5.1 of the Law)

-Substance-Based Income Exclusion Election (Article 5.3.1 of the Law)

-Taxable distribution Election (Article 7.6.1 of the Law)

-Tax Transparency Election (Article 7.5.1 of the Law)

-Distribution Tax Regime Election (Article 7.3.1 of the Law)

Elections in the Administrative Guidance

All of the elections in the OECD Administrative Guidance are included in the Law (as a result of general incorporation of the OECD Administrative Guidance and also resulting from a specific note in the relevant section of the Law). This includes the:

-Excess Negative Tax Carry-Forward Election (Note to Section 4.1.5 of Schedule 61 of the Law)

-Debt Release Election (Note to Section 3.2.1 of Schedule 61 of the Law)

-Foreign Exchange Hedge Election (Note to Section 3.2.1 of Schedule 61 of the Law)

-Equity Investment Inclusion Election (Note to Section 3.2.1 of Schedule 61 of the Law)

-Portfolio Shareholding Election (Note to Section 3.2.1 of Schedule 61 of the Law)

DEVIATIONS FROM THE OECD MODEL RULES/EU GLOBAL MINIMUM TAX DIRECTIVE

The OECD Model Rules allow flexibility as to how to apply the UTPR. Hong Kong’s approach is to apply a UTPR top-up tax rather than a denial of deduction.

As such the carry forward provisions in Article 2.4.2 of the Model Rules for UTPR amounts not sufficient to provide for the additional cash tax expense are not relevant and these rules are not included in the Bill.

The general anti-avoidance rule under section 61A of the IRO is applied, with modifications, to the global minimum tax and HKMTT regimes. In particular it applies where any change in the top-up tax liability will be achieved or may reasonably be expected to be achieved by the transaction is inconsistent with the outcomes provided under the OECD GloBE model rules, as construed in accordance with the OECD GloBE rules guidance.

DOMESTIC MINIMUM TAX

General

Schedule 62 provides for a qualified domestic minimum top-up tax that has qualified domestic minimum top-up tax safe harbour status (including transitional qualified status). This is referred to as the Hong Kong minimum top- up tax (HKMTT).

The intention is for the design of HKMTT to meet the requirements of a QDMTT so that the top-up tax paid under HKMTT is creditable against the top-up tax imposed under the GloBE rules. This will enable in-scope MNE groups to benefit from the QDMTT Safe Harbour.

QDMTT Design Features

Schedule 62, Section 4 of the Law provides that the top-up tax chargeable for the fiscal year on the HK constituent entity under the HKMTT is based on the general GloBE provisions, subject to a number of modifications. The main modifications are:

Local Accounting Standard

Schedule 62, Section 5 of the Law provides that the accounting standard used for determining the HKMTT will be a local accounting standard if:

-each HK constituent entity of the MNE group has financial accounts prepared in accordance with the local accounting standard;

-the accounting period of each entity’s accounts is the same as the fiscal year of the consolidated financial statements of the UPE of the MNE group; and

-for the fiscal year:

                  -each HK constituent entity of the MNE group is required to prepare or use the entity’s accounts for determining its liability to tax in Hong Kong or to comply with any other law of Hong Kong; or

                   -each entity’s accounts are subject to external financial audit.

A local accounting standard is defined as International Financial Reporting Standards or accounting standards as defined by section 357(1) of the Companies Ordinance (Cap. 622).

Taxes Pushed Down

As required in the OECD Administrative Guidance, Section 6 of Schedule 62 excludes taxes pushed down to PEs, CFCs, Hybrids and taxes on distributions (aside from domestic withholding tax).

The Law includes the June 2024 OECD Administrative Guidance on the pushdown restriction for Hybrid/Reverse Hybrid entities. As such covered taxes accrued in the financial accounts of a constituent entity-owner of the HK constituent entity are to be included in the adjusted covered taxes of the HK constituent entity if the taxes:

-are allocated to the HK constituent entity under Article 4.3.2(d) of the GloBE rules;

-are imposed by the jurisdiction of the HK constituent entity; and

-relate to the income of the HK constituent entity.

Specific provisions disregarded

Section 6 of Schedule 62 excludes certain provisions of the OECD Model Rules for HKMTT purposes. This includes:

Articles 4.2.1(b) (Taxes on distributed profits, deemed profit distributions, and non-business expenses imposed under an Eligible Distribution Tax System for HKMTT purposes);

Article 7.3 (Eligible Distribution Tax Systems);

Article 6.4.1(b) (application of IIR and UTPR in connection with Joint Ventures and JV Subsidiaries);

Article 6.5.1(e), (f) and (g) (application of IIR and UTPR in connection with Multi-Parented MNE Groups);

Initial Activity Exemption

The UTPR exclusion for MNEs in their initial phase of international activity does not need to be included in a QDMTT, however, it can be included. The Second Set of OECD Administrative Guidance provides jurisdictions with three options regarding the temporary UTPR exclusion in their QDMTT legislation.

Option one allows the jurisdiction not to adopt it.

Option two allows the jurisdiction to adopt it but limits it to cases where no Parent Entity is required to apply a Qualified Income Inclusion Rule with respect to Constituent Entities of an MNE Group located in the QDMTT jurisdiction.

Option three allows the jurisdiction to adopt it without any limitations. (Note, if a jurisdiction opts for Option three, for the purposes of the QDMTT Safe Harbour the Switch-Over Rule would apply).

Hong Kong applies option two in Section 7 of Schedule 62.

Transitional Year Reset

Section 8 of Schedule 62.provides for the transitional year refreshing rule.

A new transition year, arises in an accounting period in which the entities of an MNE/domestic fall within the scope of a qualified IIR or UTPR if this accounting period begins after the beginning of the transition year for QDMTT purposes.

In the new transition year the following attributes of the relevant Constituent Entities are refreshed:

-Any Excess Negative Tax Expense Carry-forward under Article 4.1.5 or Article 5.2.1 is eliminated at the beginning of the new Transition Year.

-The DTL recapture rule in Article 4.4.4 does not apply to any deferred tax liability that was taken into account in computing the ETR under the QDMTT and that was not recaptured prior to the new Transition Year.

-Any GloBE Loss Deferred Tax Asset that arose in a year preceding the new Transition Year must be eliminated. The Filing Constituent Entity may make a new GloBE Loss election in the new Transition Year.

-The deferred tax items previously determined are eliminated and Article 9.1.1 is applied at the beginning of the new Transition Year.

-Article 9.1.2 applies to transactions occurring after November 30, 2021 and before the beginning of the new Transition Year. However, if QDMTT was payable due to the application of Article 4.1.5 in respect of a deferred tax asset attributable to a tax loss, the deferred tax asset is not treated as arising from items excluded from the computation of GloBE Income or Loss under Chapter 3 of the OECD Model Rules.

Elections

As required in the OECD Administrative Guidance, Section 9 of Schedule 62 of the Law also requires that any GloBE election made (or revoked) is taken into account for QDMTT purposes, if the election is included in a GloBE Information Return that would affect the top-up tax calculation.

Currency

The Second set of OECD Administrative Guidance also provides that where all the constituent entities use the domestic accounting standard and use the Hong Kong currency as their functional currency in preparing those financial statements, the calculations for the purposes of the HKMTT are to be carried out in the Hong Kong currency.

Where not all Constituent Entities in the jurisdiction use the Hong Kong currency as their functional currency, Section 10 of Schedule 62 of the Law provides that the Filing Constituent Entity may make a Five-Year Election to undertake the HKMTT computations for all Constituent Entities in the jurisdiction either:

-in the presentation currency of the Consolidated Financial Statements; or

-in Hong Kong currency.

Investment Entities

Schedule 62, Section 3 of the Law provides for an exclusion for investment entities and insurance investment entities for HKMTT purposes.

Registration

Schedule 63(5) provides that each Hong Kong constituent entity of an in-scope MNE group will be required to file an annual notification (“top-up tax notification”).

The top-up tax notification is required for notifying the Tax authority that an MNE group has come within the scope of the global minimum tax and HKMTT, as well as identifying the entity and jurisdiction from which Hong Kong will receive the GIR and the local entities for which the obligation to file the top-up tax return will be lifted when certain conditions are met.

The top-up tax notification is to be filed within 6 months after the last day of the reporting fiscal year.

An in-scope MNE group can appoint one designated local entity to file a top-up tax notification so as to relieve other Hong Kong constituent entities from the filing obligation.

Filing

The relevant aspects of the submission of a GloBE Information Return (GIR) are included, as provided in the OECD Model Rules.

The approach is that every Constituent Entity located in Hong Kong will have an obligation to file a GIR in Hong Kong. However, this obligation can be discharged if the GIR is filed by:

-The Ultimate Parent Entity, or

-The Designated Filing Entity.

Where the GIR is being filed by either the Ultimate Parent Entity or the Designated Filing Entity, the Constituent Entity, must file a notification with the Tax Authority.

The notification must contain:

-Details of the entity that is filing the GIR, and

-The jurisdiction in which such an entity is located.

Where the GIR is filed by the Designated Local Entity it needs to outline the Constituent Entities that it is filing on behalf of.

Both the GIR and associated notifications must be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

A top-up tax return is required to be submitted by the GIR filing deadline. However, Sections 63(6) and 63(8) permit group filing (broadly where the return is filed by a designated local entity or a UPE or designated filing entity and an information exchange agreement is in place if the entity is not resident in Hong Kong).

Payment

The payment due date is one month after the expiry of the return filing deadline or the date of the notice of assessment, whichever is the later.

For UTPR and HKMTT purposes, the group can designate one paying entity or more.

However, if any of the designated paying entity does not pay the top-up tax payable, all Hong Kong constituent entities will be jointly and severally liable for the whole amount of top-up tax payable of the group.

Penalties

The penalties for breaches of the GloBE rules are set at a comparable level to the existing provisions in relation to profits tax under sections 80, 82 and 82A of IRO.

On September 26, 2025, Hong Kong updated its Pillar 2 Guidance to include information on its Pillar 2 Portal, applications for Group Codes and mandatory e-filing of profit tax returns for Pillar 2 groups.

The updated Guidance notes that a Pillar Two Portal is being developed to facilitate the submission of the relevant notifications and returns and will be launched in phases from January 2026 onwards.

The Guidance states that the Pillar Two Portal is an extended function of the current Business Tax Portal (“BTP”). In-scope MNE groups will have to register their dedicated business accounts under the BTP for accessing the Pillar Two Portal. The individual authorised to submit top-up tax notifications and top-up tax returns has to use his/her e-cert (Organisational) with AEOI Functions for authentication.

Information on BTP Registration

The Guidance states that each MNE group, HK standalone JV or JV group will need to apply for a unique group code.

To obtain a group code, an “Application for Group Code in respect of Multinational Enterprise Group, HK Standalone JV or JV Group” (Form IR1485) should be submitted to the Hong Kong Revenue Department in paper form.