🇭🇰OECD Pillar 2 in Hong Kong: 15% Global Minimum Tax for Large Multinational Groups

Concept

From January 1, 2025, Hong Kong applies OECD Pillar 2 rules — a 15% global minimum effective tax for large multinational groups. The rules are implemented through the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Ordinance 2025 (Ord. No. 21 of 2025, HK e-Legislation). The Inland Revenue Department has not issued a DIPN on Pillar 2: practical guidance is published on the IRD global minimum tax page — a Supplementary User Guide for preparing the GIR, Pillar Two Portal materials and Form IR1485. The regime affects Hong Kong companies within large multinational groups; for registration and taxation in Hong Kong itself, see Company in Hong Kong.

Hong Kong has introduced two components:

• Hong Kong Minimum Top-up Tax (HKMTT) — a local top-up for Hong Kong companies within an MNE group. This is a Qualified Domestic Minimum Top-up Tax (QDMTT) under the OECD Inclusive Framework: if the effective tax rate in HK for the group is below 15%, the difference is collected directly in HK — the parent company's jurisdiction no longer reaches that profit.
• HK Income Inclusion Rule (IIR) — if a Hong Kong company is the ultimate parent or intermediate parent entity of a group, it collects top-up tax from low-taxed foreign subsidiaries.

Who the Regime Affects

Pillar 2 is a regime for large multinational enterprise groups. Applicability is determined at the ultimate parent entity level:

• group revenue ≥ €750 million in 2 of the last 4 fiscal years;
• entity is consolidated line-by-line in group financial statements (control typically ≥ 50%);
• entity is not an excluded entity (government entities, international organizations, non-profits, pension funds; investment funds and real estate investment vehicles qualify only where they are themselves the ultimate parent entity — GloBE Model Rules, Art. 1.5.1).

This means the regime applies to MNE groups with global revenue from €750 million — large trading holdings, resource groups, corporations with international portfolios, technology groups with global revenue structures. Family office holdings, SME companies, and individual HK Ltd without a parent group of the corresponding size do not fall under Pillar 2. Within an in-scope group there is one more carve-out: investment entities and insurance investment entities are excluded from HKMTT to preserve the tax neutrality of fund structures.

How the Effective Tax Rate Works

ETR is calculated on an aggregate basis for all Hong Kong entities of one group according to the GloBE Rules formula:

ETR = adjusted covered taxes / GloBE income

where:

• adjusted covered taxes — corporate taxes actually paid in HK in the reporting year according to GloBE adjustment rules;
• GloBE income — financial accounting income under applicable standards (HKFRS, IFRS, US GAAP, or equivalent) with adjustments according to GloBE rules.

If the group's ETR for HK is below 15%, top-up tax = (15% − ETR) × (GloBE income − Substance-based Income Exclusion).

Since the calculation is aggregated, the offshore claim of one HK company is "diluted" by the onshore income of other Hong Kong companies in the same group. This changes the structuring logic: "one entity 0% offshore + another 16.5% onshore" within one MNE group no longer provides a predictable aggregate rate, because the overall ETR is calculated.

When an HK Company Falls Under Top-up

Substance-based Income Exclusion (SBIE)

GloBE Rules provide a "substance" relief: part of the profit is exempt from the top-up calculation in proportion to real economic activity in the jurisdiction.

For HK, SBIE is calculated as:

• % of payroll — employee expenses in Hong Kong (actual payroll per financial statements);
• % of tangible assets — book value of property, plant and equipment in Hong Kong.

Rates decrease according to the OECD GloBE Rules transitional schedule:

This means an HK company with a real office, permanent staff, and tangible assets in Hong Kong receives a smaller top-up than a holding without substance. A real team and physical presence in HK become a parameter directly calculated in the tax formula.

QDMTT Safe Harbour

Hong Kong has structured HKMTT as a Qualified Domestic Minimum Top-up Tax. This provides a QDMTT Safe Harbour: if HKMTT collects top-up according to rules recognized by the OECD as qualified, other jurisdictions cannot claim the same low-taxed profit through IIR or Undertaxed Profits Rule (UTPR).

Practically, this means that if an HK company in a group falls under top-up, the tax is collected in Hong Kong and is not duplicated in the jurisdiction of the parent company. This provides predictability: the place of top-up collection is known in advance, the calculation is conducted according to HK rules, and collection and disputes run through the familiar IRO mechanisms because top-up tax is deemed profits tax. Hong Kong has obtained transitional qualified status for its IIR, HKMTT and QDMTT Safe Harbour from January 1, 2025 and is listed in the OECD Central Record — pending the full legislative peer review, it is this status that gives HKMTT priority over other countries' IIR and UTPR.

Transitional Safe Harbour (CbCR)

For the transitional period, the OECD has provided a CbCR Transitional Safe Harbour (OECD GloBE Implementation Framework, December 2022); in Hong Kong it is written directly into Schedule 61 to the IRO for fiscal years beginning on or before December 31, 2026 and not ending after June 30, 2028. A group is exempt from full GloBE calculation for a jurisdiction if at least one of three tests based on Country-by-Country Reporting is met:

• De minimis test — revenue in the jurisdiction < €10 million and profit before tax < €1 million;
• Simplified ETR test — Simplified ETR ≥ 16% for a fiscal year beginning in 2025 and ≥ 17% for one beginning in 2026 (the OECD rate for 2023–2024 was 15%, but the Hong Kong regime starts from 2025);
• Routine profits test — profit before tax does not exceed SBIE for that jurisdiction.

If at least one test is met, top-up for that jurisdiction is deemed zero for the corresponding fiscal year. The Inclusive Framework's side-by-side package of January 5, 2026 extended the transition period at OECD level by one year — to fiscal years beginning on or before December 31, 2027 and ending no later than June 30, 2029, with the 17% transition rate applying to 2027 as well. In Hong Kong, OECD documents take effect through Schedule 64 to the IRO and the transition period itself is fixed in Schedule 61; both are amended by notice of the Secretary for Financial Services and the Treasury (s. 26AG IRO), so the extension moves the Hong Kong deadline only once such an amendment is made — without it, fiscal years beginning after December 31, 2026 are computed under the full GloBE rules.

The Other Safe Harbours of the 2026 Package

The transitional CbCR safe harbour is not the only one. The same Inclusive Framework package of January 5, 2026 added three permanent ones, each tested on its own terms.

The Simplified ETR Safe Harbour replaces the simplified ETR test of the transitional safe harbour. At the filing constituent entity's election the top-up for a tested jurisdiction is deemed zero where its Simplified ETR is at least the minimum rate or where the jurisdiction has a Simplified Loss; the computation runs on the financial accounting data used to prepare the group's consolidated financial statements, with a limited set of adjustments. The election is available for fiscal years commencing on or after December 31, 2026; a jurisdiction may open it a year earlier, for fiscal years commencing on or after December 31, 2025, and the group can then use it on one of three conditions: the QDMTT Safe Harbour applies to the tested jurisdiction; only one jurisdiction has taxing rights over it under the GloBE Rules; or every jurisdiction with such taxing rights has enacted the earlier application and the election is made under the legislation of all of them.

The Substance-based Tax Incentive Safe Harbour works on incentives rather than on the rate. A Qualified Tax Incentive is a generally available incentive computed on expenditure incurred or on the amount of tangible property produced in the jurisdiction; at the filing entity's election the adjusted covered taxes of entities in that jurisdiction are increased by the lower of the amount of qualified incentives used in the year and the Substance Cap. The Substance Cap is 5.5% of the greater of two bases — eligible payroll costs of employees performing activities in the jurisdiction, and depreciation and depletion on eligible tangible assets located there; on a five-year election it is instead 1% of the carrying value of eligible tangible assets, excluding land and other non-depreciable assets. The safe harbour is available for fiscal years commencing on or after January 1, 2026. For Hong Kong it is interesting because it runs on the same logic as SBIE: the more real people and assets sit in the jurisdiction, the more of an incentive survives the minimum tax.

The UPE Safe Harbour is the narrow relative of side-by-side, for jurisdictions that meet only the domestic half of the criteria. It deems the top-up tax of the UPE jurisdiction to be zero, but solely for purposes of the UTPR and only for constituent entities located in that jurisdiction; it touches neither the IIR, nor the group's other jurisdictions, nor any QDMTT. A Qualified UPE Regime requires a statutory nominal corporate income tax rate of at least 20% after preferential adjustments and sub-national taxes, a QDMTT or a corporate alternative minimum tax based on financial statement income at a nominal rate of at least 15% applicable to a substantial portion of in-scope group income, and no material risk of an effective rate below 15% on domestic operations — with the regime enacted and in effect as at January 1, 2026. Qualifying jurisdictions are listed on the Central Record; as at the record, none is.

The Hong Kong layer is the same for all three as for the extension of the transitional safe harbour: OECD documents take effect through Schedule 64 to the IRO by notice of the Secretary for Financial Services and the Treasury (s. 26AG IRO), so the availability of each safe harbour in Hong Kong is checked against the current text of the Schedules, not against the date of the package.

Timing and Administrative

• Effective — for fiscal years beginning January 1, 2025 or later; the law applies retrospectively, as the Ordinance was gazetted in 2025.
• Filing deadlines: top-up tax notification — within 6 months after the end of the fiscal year (for the year ending December 31, 2025 — by June 30, 2026); top-up tax return and GloBE Information Return (GIR) — within 15 months after the end of the year, extended to 18 months for the group's transition year. For a year ending December 31, 2025 this means March 31, 2027 for groups already within the scope of Pillar 2 in 2024, and June 30, 2027 for groups whose transition year is FY2025.
• Top-up tax return — a single return covering both the GloBE rules and HKMTT, separate from the Profits Tax Return and on its own deadline; it is filed only electronically through the Pillar Two Portal. Top-up tax itself is deemed profits tax for IRO purposes — hence the usual collection, objection and appeal mechanisms, but with no provisional tax: the notice of assessment is issued on the basis of the return.
• Auditor — the Ordinance imposes no formal GloBE-specific qualification requirement on the auditor; in practice the HKMTT calculation is integrated into the standard audit process, and GloBE experience on the group's audit team is desirable.

Pillar Two Portal: Registration and the 2026 Calendar

On January 19, 2026 the IRD launched the first phase of the Pillar Two Portal: Part 4AA entities of in-scope groups use it to file top-up tax notifications for fiscal years beginning on or after January 1, 2025. The portal is an extension of the Business Tax Portal (BTP) with no separate registration of its own: a Hong Kong constituent entity opens a BTP Business Account, appoints a BTP Administrator and assigns users the "Pillar Two Matters" service. The second phase is scheduled for the fourth quarter of 2026 — filing of top-up tax returns and electronic notices of top-up tax assessment.

Group registration runs through a code. The IRD assigns an MNE code to each in-scope MNE group, and an HK standalone JV or JV group additionally receives a JV code; without the code the notification form in the portal does not open. The code is requested on paper Form IR1485. Signing and submitting the notification and the return requires an e-Cert (Organisational) with AEOI Functions from Hongkong Post — the portal accepts neither an ordinary e-Cert (Organisational) nor an e-Cert (Personal), while a certificate already issued for the CbC Reporting Portal works. A service provider engaged under s. 13 of Schedule 63 IRO files on the client's behalf through the Tax Representative Portal; a tax representative without that status can view what has been filed, raise enquiries and lodge objections, but cannot file the notification or the return itself. An entity without a Business Registration Number (not carrying on business in Hong Kong) obtains a BRN equivalent from the IRD on request for BTP registration.

Every Hong Kong constituent entity of an in-scope group has to notify, but the group may appoint one designated local entity, which relieves the others; an HK standalone JV and a stateless constituent entity file their own notification. After submission only the list of Hong Kong entities can be amended in the portal; other changes (who files the GIR and where, the filing entity) go by e-message through the BTP. The transition year for filing purpose, which gives 18 months instead of 15, is the earliest fiscal year in which any constituent entity, JV or JV subsidiary of the group became subject to a qualified IIR or UTPR in Hong Kong or another jurisdiction, or to HKMTT (Schedule 63, s. 9(3) IRO).

Exchange and the common understanding on central filing are two different things, and they are routinely conflated. The GIR MCAA, which Hong Kong signed on April 21, 2026, is the legal framework for exchange: it creates the basis for sending GIR sections, but it operates only between pairs of jurisdictions that have activated the relationship — and the Hong Kong relief from local GIR filing under s. 6 of Schedule 63 IRO is itself conditioned on an activated exchange. The OECD common understanding of May 18, 2026 is something else: thirty-seven jurisdictions applying a qualified IIR or QDMTT from their 2024 fiscal year agreed, to the extent available under their domestic laws, either to waive penalties for failure to file a local GIR or not to enforce local filing before the relevant exchange deadline, where the group filed the GIR centrally in one of the annex jurisdictions and filed the local notification on time. That is a political commitment rather than a rule, and it has a way back: a jurisdiction may return to enforcement if the centrally filed GIR has not reached it by the exchange deadline. Hong Kong is not among the thirty-seven — its regime starts in 2025 and the understanding is written for the 2024 reporting fiscal year — so for a Hong Kong entity the understanding helps in the group's other jurisdictions rather than in Hong Kong. The local notification remains mandatory everywhere and always. Deadlines, the contents of the return, the mechanics of exchange and the penalties are covered in global minimum tax reporting.

The calendar for a group whose fiscal year is the calendar year (first reporting year FY2025):

For a fiscal year ending March 31, 2026 the same rules give a notification deadline of September 30, 2026 and a return deadline of June 30, 2027 (15 months) or September 30, 2027 (18 months).

There is no provisional top-up tax: the notice of assessment is issued on the basis of the return, payment is due one month after the return filing deadline or the date of the notice, whichever is later, and an objection must be lodged within two months of the date of the notice. Failure to file, or an incorrect notification or return, is penalised under ss. 80O, 82 and 82A IRO at levels comparable to profits tax, and a service provider is liable under s. 80P. In parallel, e-filing of the Profits Tax Return became mandatory for all Part 4AA entities of in-scope groups from the year of assessment 2025/26 (Schedule 65 IRO) on a once-in, always-in basis: an entity that has once been caught keeps e-filing even after the group leaves the scope.

What Is Already in Effect and What Is Deferred

The path was fast: the bill (Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024) was gazetted on December 27, 2024, passed by the Legislative Council on May 28, 2025, and the Ordinance was gazetted on June 6, 2025 — applying retrospectively to fiscal years beginning January 1, 2025 or later. Hong Kong has introduced two elements of BEPS 2.0 — IIR and HKMTT (QDMTT); the third, the Undertaxed Profits Rule (UTPR), is deferred, and its effective date will be announced later.

Top-up tax is built into the regular profits tax mechanism: HKMTT and IIR are administered under the Inland Revenue Ordinance (Cap. 112) — Part 4AA and Schedules 61–64, a QDMTT paid in another jurisdiction reduces the IIR top-up, and the mutual agreement procedure under Hong Kong's DTAs is available for cross-border disputes. For GloBE purposes an entity is located in Hong Kong if it is incorporated there or, if incorporated elsewhere, is normally managed or controlled in Hong Kong; this "Hong Kong resident entity" definition applies retrospectively from January 1, 2024, so that such entities count as Hong Kong-located already for FY2024 and face less exposure to top-up in jurisdictions that started GloBE in 2024. The regime's general anti-avoidance rule is the sole or dominant purpose test, in the same logic as GAAR and the principal purpose test. The size of the SBIE relief depends directly on the group's real presence — hence the focus on economic substance. According to the authorities' estimate, the regime will add about HK$15 billion a year to Hong Kong's budget starting from 2027–28.

Application Scenarios

MNE Group with HK Trading Subsidiary on Offshore Claim

Before 2025: HK subsidiary paid 0% under the territorial principle, ETR of this entity = 0%.

From 2025: with group revenue ≥ €750 million, HKMTT collects the difference up to 15% from GloBE income minus SBIE. With HK subsidiary turnover of $50 million and profit of $10 million, top-up will be approximately $1.3–1.5 million per year depending on the volume of payroll and tangible assets in HK for SBIE relief.

Top-up is collected in Hong Kong through QDMTT Safe Harbour; the parent company's jurisdiction does not tax the same profit again.

US Parent, Hong Kong Subsidiary

The Inclusive Framework package of January 5, 2026 gave groups with a US ultimate parent entity a safe harbour of their own, and it changes only half the picture. Under the Side-by-Side Safe Harbour the filing constituent entity may elect for the top-up tax of a jurisdiction to be deemed zero for purposes of the IIR and the UTPR where the group's ultimate parent entity is located in a jurisdiction with a Qualified SbS Regime. On the OECD Central Record that jurisdiction is at present the United States alone, and the safe harbour is available for fiscal years commencing on or after January 1, 2026. The deemed zero extends to the group's interests in a Joint Venture or JV Subsidiary — for Hong Kong joint ventures of US groups the package says so in a separate paragraph, while another group's interest in the same joint venture is unaffected.

HKMTT is not removed. The package expressly keeps all groups, including those electing side-by-side, subject to the QDMTT in every jurisdiction that has one, and requires the QDMTT everywhere to be computed without the pushdown of taxes on controlled foreign companies or foreign branches. A Hong Kong subsidiary of a US group therefore pays HKMTT on the same footing as a subsidiary of a European or Japanese group: the safe harbour removes the parent-jurisdiction layer, the local minimum stays. For FY2025 it does not help at all — the Hong Kong regime runs from 2025 and side-by-side starts a year later.

Group in the €500–750 Million Revenue Zone

The €750 million threshold is triggered when exceeded in 2 of 4 last fiscal years. A company with revenue of €700 million in 2024, €820 million in 2025, and €780 million in 2026 falls under Pillar 2 starting in 2027.

The practical solution for a group in this zone is to track consolidated revenue through quarterly financial statements, model ETR per jurisdiction, and check Transitional Safe Harbour through CbCR in advance.

HK Company with Licensed Activity (MSO / SVF)

Regulated Hong Kong entities—MSO, SVF, SFC-licensed—typically operate with a real office, permanent team (AML Officer / Compliance Officer / Risk / Technology), and pay profits tax at 16.5% onshore. The ETR of such a company is already above 15%, and SBIE for payroll and tangible assets provides an additional buffer. Top-up in this case typically does not arise.

HNW Structure Without MNE Group

An HNW holding of a single founder, family office, individual trading HK Ltd without a multinational parent group with group revenue ≥ €750 million—do not fall under Pillar 2. The regime does not apply; regular HK profits tax rules work as before.

What to Check for FY2025 and Beyond