Compare total tax as a limited company drawing a salary against a sole proprietorship.
Lower total tax
—
Sole trader profits tax
—
Company total tax
—
Company profits tax
—
Salaries tax on salary
—
Your breakdown
Updates live as you type| Step | Sole trader | Company route |
|---|
Two tax regimes, one set of profits
The choice between a limited company and a sole proprietorship in Hong Kong is partly a legal and liability decision, but on a single number, the total tax you hand to the Inland Revenue Department, it comes down to which of two regimes treats your profit more kindly. A sole trader is taxed once, under the unincorporated profits tax rates, on the whole profit. A company is taxed twice but at lower effective points: the company itself pays profits tax on what is left after your salary, and you pay salaries tax on the salary you draw. Because a director's salary is a deductible expense for the company, every dollar of salary shifts profit out of the profits tax net and into the salaries tax net, where allowances and gentle progressive bands can soak it up.
This tool compares total tax only. It deliberately ignores audit fees, the annual return, the business registration certificate and the administrative load of running a company, all of which matter and all of which favour the sole trader at small scale. Treat the tax figure as one input, not the verdict.
The rates each side pays
An unincorporated business (the sole trader) pays profits tax at a lower rate on the first slice of assessable profits and a higher rate above it, on a two-tiered basis. A company pays at a parallel pair of rates, both a notch higher. The salary you draw is then run through salaries tax: mandatory MPF is deducted first, the basic allowance comes off, and the progressive bands apply. The specific rates this calculator applies are the unincorporated 7.5 percent and 15 percent, the corporate 8.25 percent and 16.5 percent, with the lower rate covering the first $2 million of profits in each case, a single basic allowance of $132,000 and MPF capped at $18,000 a year. Those figures are the model's working assumption for the 2025/26 year of assessment, not a guarantee of current law, so confirm the live rates with the IRD before you restructure anything.
A $1.5 million profit, $600,000 salary drawn
Take the calculator's defaults: $1.5 million of business profit, and if you incorporate, a $600,000 salary out of it. As a sole trader the whole $1.5 million is taxed at the unincorporated rates, which on the first $2 million is simply 7.5 percent, giving $112,500. As a company, the $600,000 salary is deducted, leaving $900,000 of company profit taxed at 8.25 percent ($74,250). The salary itself, after $18,000 of MPF and the $132,000 allowance, leaves $450,000 chargeable, on which the progressive bands produce $55,500. Add those and the company route costs $129,750. The sole trader wins by $17,250 here, using the rates this calculator applies.
Why the company can still win
At a $1.5 million profit the sole trader is ahead, but the picture flips as profits climb. Once profit comfortably clears the $2 million two-tier threshold, more of it would be taxed at 15 percent as a sole trader, while a generous salary can keep large chunks inside the lower salaries bands and the company profit inside its own 8.25 percent tier. Push the profit figure up in the calculator and you can watch the gap close and reverse. The chart below shows the two totals at this profit level so you can see the size of the difference.
Common questions
Does the salary I pay myself face MPF on both sides?
Yes. A director who is an employee of their own company triggers mandatory MPF of 5 percent from the employee and 5 percent from the company, each capped at $1,500 a month, so $18,000 a year per side at the ceiling. The calculator deducts the employee 5 percent (capped) before applying salaries tax, mirroring the IRD deduction. The employer half is a further cost the company bears, which this tax-only comparison does not net out, so build it into your own decision.
Are dividends from my own company taxed when I take them?
No. Hong Kong does not tax dividends in the shareholder's hands, so profit left in the company and paid out later as a dividend escapes a second layer of personal tax entirely. That is a real structural advantage of incorporating that this tool does not model, because it only compares profits tax against salaries tax on a drawn salary. If your plan is to retain profit and distribute dividends rather than pay a large salary, the company can look materially better than the salary-only comparison suggests.