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

Concept

From January 1, 2026, 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 (HK e-Legislation) and accompanied by Departmental Interpretation and Practice Notes (DIPN) from the HK Inland Revenue Department.

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, not in the jurisdiction of the parent company.
• 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.

🍓 Pillar 2 applies only to groups with consolidated revenue ≥ €750 million in 2 of the last 4 fiscal years (the same threshold as for Country-by-Country Reporting). The regime does not apply to small and medium-sized companies, holdings of a single founder, or individual trading companies without a multinational parent group.

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, real estate investment vehicles).

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.

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 not just "convenience for the bank," but 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 is integrated with the regular profits tax filing cycle.

Transitional Safe Harbour (CbCR)

For the transitional period, the OECD has provided a CbCR Transitional Safe Harbour for fiscal years beginning before December 31, 2026 (OECD GloBE Implementation Framework, December 2022). 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 ≥ 15% in 2024, 16% in 2025, 17% in 2026;
• 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. After 2026, this relief does not apply, and the calculation is conducted according to full GloBE rules.

Timing and Administrative

• Effective from January 1, 2026 — for fiscal years beginning January 1, 2026 or later.
• GloBE Information Return (GIR) — filed within 15 months after the end of the fiscal year (for the group's first GIR—18 months). For FY2026, the first GIR is due by June 30, 2028.
• HKMTT assessment — separate calculation, but filed together with the regular Profits Tax Return through the standard IRD cycle.
• Auditor — the group's HKICPA auditor must have experience with GloBE calculations; HKMTT calculation is integrated into the standard audit process.

Application Scenarios

MNE Group with HK Trading Subsidiary on Offshore Claim

Before 2026: HK subsidiary paid 0% under the territorial principle, ETR of this entity = 0%.

From 2026: 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, not in the jurisdiction of the parent company.

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 Before FY2026

Q/A

How to calculate group revenue for the €750 million threshold?

Consolidated revenue is taken from the financial statements of the ultimate parent entity. Excluded entities (government entities, international organizations, non-profits, pension funds, investment funds) are excluded. The 2 of 4 fiscal years rule applies (by analogy with the Country-by-Country Reporting threshold).

What financial reporting standards does GloBE accept?

GloBE Rules accept financial statements under the standards of the ultimate parent jurisdiction: IFRS, HKFRS, US GAAP, Japanese GAAP, EU IFRS, and equivalents. Local GAAP is permitted with reconciliation to GloBE rules. Reconciliation is performed by a GloBE tax advisor.

HK Ltd in a joint venture (without 100% control)—is Pillar 2 applicable?

Depends on the level of control. If the ultimate parent owns ≥ 50% and the entity is consolidated in group financial statements line-by-line—the entity is part of the MNE group under GloBE. Minority investments < 50% (e.g., 30% in HK JV without consolidation) typically are not part of the group under GloBE.

How does HK collect HKMTT—together with profits tax or separately?

HKMTT has a separate calculation and separate assessment, but is filed together with the Profits Tax Return through the standard IRD cycle. HK IRD issued DIPN on Pillar 2 in 2025—an HKICPA auditor processes both calculations in the standard audit process.

Can HKMTT be avoided through restructuring?

No. Pillar 2 is a coordinated regime of the Inclusive Framework: if HKMTT does not collect top-up as QDMTT, another jurisdiction will collect it through IIR or UTPR. The only way to exit the regime is for group revenue to be consistently below €750 million.

What changes for an HK company with offshore claim as part of a large MNE group?

The offshore claim itself remains valid for HK profits tax purposes: the HK subsidiary still pays 0% under the territorial principle. But in the Pillar 2 calculation, the ETR of this entity = 0%, and when the group's ETR for HK is below 15%, HKMTT top-up arises. The real economic effect—offshore claim no longer provides 0% in aggregate, but provides 15% (or close to it effective rate) after top-up.

Does substance in HK affect the size of top-up?

Yes, through Substance-based Income Exclusion. SBIE reduces GloBE income to which (15% − ETR) is applied. A real team (payroll) and tangible assets in HK reduce top-up. According to the transitional schedule, SBIE percentages are higher in the first years (9.8% / 7.8% in 2026) and decrease to 5%/5% by 2033.

When is GIR filed?

Standardly—within 15 months after the end of the fiscal year. For the group's first GIR—18 months. For FY2026, the first GIR is filed by June 30, 2028.

Related Materials

• Company in Hong Kong — territorial principle and standard HK Ltd structure
• MSO License in Hong Kong — example of a licensed HK company with onshore profits tax and real substance
• SVF License in Hong Kong — example of an HK entity with banking-level substance
• Audit of a Company in Hong Kong — HKICPA audit as the integration point of HKMTT calculation into the standard cycle
• Hong Kong and Singapore: Roles Instead of Rankings — comparison of jurisdictions for MNE structures
• Hong Kong and UAE — structural choice HK vs UAE for a group

FAQ

How to calculate group revenue for the €750 million threshold?

Consolidated revenue is taken from the financial statements of the ultimate parent entity. Excluded entities (government entities, international organizations, non-profits, pension funds, investment funds) are excluded. The 2 of 4 fiscal years rule applies (by analogy with the Country-by-Country Reporting threshold).

What financial reporting standards does GloBE accept?

GloBE Rules accept financial statements under the standards of the ultimate parent jurisdiction: IFRS, HKFRS, US GAAP, Japanese GAAP, EU IFRS, and equivalents. Local GAAP is permitted with reconciliation to GloBE rules. Reconciliation is performed by a GloBE tax advisor.

HK Ltd in a joint venture (without 100% control)—is Pillar 2 applicable?

Depends on the level of control. If the ultimate parent owns ≥ 50% and the entity is consolidated in group financial statements line-by-line—the entity is part of the MNE group under GloBE. Minority investments < 50% (e.g., 30% in HK JV without consolidation) typically are not part of the group under GloBE.

How does HK collect HKMTT—together with profits tax or separately?

HKMTT has a separate calculation and separate assessment, but is filed together with the Profits Tax Return through the standard IRD cycle. HK IRD issued DIPN on Pillar 2 in 2025—an HKICPA auditor processes both calculations in the standard audit process.

Can HKMTT be avoided through restructuring?

No. Pillar 2 is a coordinated regime of the Inclusive Framework: if HKMTT does not collect top-up as QDMTT, another jurisdiction will collect it through IIR or UTPR. The only way to exit the regime is for group revenue to be consistently below €750 million.

What changes for an HK company with offshore claim as part of a large MNE group?

The offshore claim itself remains valid for HK profits tax purposes: the HK subsidiary still pays 0% under the territorial principle. But in the Pillar 2 calculation, the ETR of this entity = 0%, and when the group's ETR for HK is below 15%, HKMTT top-up arises. The real economic effect—offshore claim no longer provides 0% in aggregate, but provides 15% (or close to it effective rate) after top-up.

Does substance in HK affect the size of top-up?

Yes, through Substance-based Income Exclusion. SBIE reduces GloBE income to which (15% − ETR) is applied. A real team (payroll) and tangible assets in HK reduce top-up. According to the transitional schedule, SBIE percentages are higher in the first years (9.8% / 7.8% in 2026) and decrease to 5%/5% by 2033.

When is GIR filed?

Standardly—within 15 months after the end of the fiscal year. For the group's first GIR—18 months. For FY2026, the first GIR is filed by June 30, 2028.

Key factual claims

• From January 1, 2026, Hong Kong applies OECD Pillar 2 rules—a 15% global minimum effective tax for large multinational groups.
• Pillar 2 is a regime for large multinational enterprise groups.
• 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.
• If the group's ETR for HK is below 15%, top-up tax = (15% − ETR) × (GloBE income − Substance-based Income Exclusion).
• For the transitional period, the OECD has provided a CbCR Transitional Safe Harbour for fiscal years beginning before December 31, 2026 (OECD GloBE Implementation Framework, December 2022).
• Before 2026: HK subsidiary paid 0% under the territorial principle, ETR of this entity = 0%.
• From 2026: with group revenue ≥ €750 million, HKMTT collects the difference up to 15% from GloBE income minus SBIE.
• The €750 million threshold is triggered when exceeded in 2 of the last 4 fiscal years.