Under Pillar Two of BEPS 2.0, a global minimum tax of 15% is imposed on multinational enterprise (MNE) groups with annual consolidated revenue of EUR 750 million or above in at least two of the four fiscal years immediately preceding the current fiscal year (i.e. in-scope MNE groups) through two interlocking rules. 

The Hong Kong Inland Revenue Department (IRD) has enacted legislation to implement Pillar Two of the OECD’s Base Erosion and Profit Shifting (BEPS) 2.0 initiative on 6 June 2025.  They also published the updated guidelines on the Global minimum tax and Hong Kong minimum top-up tax for multinational enterprise groups on the same date.

The update follows the enactment of the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Ordinance 2025 on 6 June 2025, introducing a 15% global minimum tax under Pillar 2 from 1 January 2025. It includes the Income Inclusion Rule (IIR), a Hong Kong minimum top-up tax (HKMTT), and an Undertaxed Profits Rule (UTPR), which will apply retroactively from 1 January 2025.

However, the implementation of the Undertaxed Profits Rule (UTPR) has been delayed and is pending further review. It will be introduced on a date decided by the Secretary for Financial Services and the Treasury.

The HKMTT applies to multinational enterprise (MNE) groups with consolidated revenues exceeding EUR 750 million. It impacts all Hong Kong entities, regardless of their ownership structure, while providing measures to prevent double taxation.

Tax compliance and administration

The GloBE rules and HKMTT reporting requirements are aligned as much as possible to reduce compliance burdens. The Hong Kong government has also introduced the following tax compliance and administration measures for the Pillar Two Rules.

  • An annual top-up tax notification must be filed within six months after the fiscal year ends (e.g., 30 June 2026 for calendar year-end groups).
  • An annual top-up tax return must be filed within 15 months (18 months for a transition year) after the fiscal year ends (e.g., by 31 March 2027 for calendar year-end groups subject to Pillar Two Rules in 2024 in other jurisdictions). Hong Kong entities are exempt from filing the Global Anti-Base Erosion Information Return (GIR) if exchanged with Hong Kong under a qualifying agreement.
  • Based on the tax return, a notice of assessment and demand for top-up tax will be issued. No provisional top-up tax will be charged, and payment is generally due one month after the assessment notice.
  • MNE groups can appoint one Hong Kong entity to file the top-up tax notification and return, and to designate top-up tax-paying entities.
  • Existing tax administration mechanisms will apply to Pillar Two Rules, with mutual agreement procedures available for resolving cross-border tax disputes.
  • Penalties apply for noncompliance, including late or incorrect filing of notifications and returns.

Mandatory electronic filing (e-filing) of profits tax returns

The Global minimum tax and Hong Kong minimum top-up tax for multinational enterprise groups on 6 June 2025 also included an update that outlines the requirements for the first phase of mandatory electronic filing of profits tax returns.

As part of the tax digitalisation journey, the IRD has committed to taking forward the full adoption of e-filing of profits tax returns for corporations and unincorporated businesses (excluding sole-proprietorship businesses) in phases.

Under the first phase of the implementation of mandatory e-filing, entities of in-scope MNE groups are mandated to e-file their profits tax returns for a year of assessment beginning on or after 1 April 2025 (i.e., year of assessment 2025/26 onwards).

First phase of implementation of mandatory e-filing

Applicable year of assessment

The mandatory e-filing requirement applies to a profits tax return for a year of assessment that begins on or after 1 April 2025 (i.e., year of assessment 2025/26 onwards) (applicable year of assessment).

Applicable profits tax returns

The mandatory e-filing requirement applies to the following types of profits tax returns:

  • Profits Tax Return – Corporations (BIR 51); and
  • Profits Tax Return – Persons Other Than Corporations (BIR 52).

Phase 1 applicable entities

An entity is mandated to e-file its profits tax return for an applicable year of assessment if both of the following two conditions are met:

Condition 1: Entity being a Part 4AA entity of an MNE group

The entity is a Part 4AA entity of an MNE group (phase 1 applicable entity) for the fiscal year (a fiscal year that is beginning on or after 1 January 2025) corresponding to the applicable year of assessment.

In accordance with the definition of “Part 4AA entity” in section 1(1) of Schedule 63 to the IRO, a

Part 4AA entity of an MNE group refers to the following entity:

  • Hong Kong constituent entity: A constituent entity that is located in Hong Kong
  • Hong Kong standalone JV:
    • A joint venture that has no JV subsidiary and is located in Hong Kong;
    • A stateless standalone joint venture that is created in Hong Kong; or
    • A stateless standalone joint venture that is a stateless permanent establishment in Hong Kong
  • HK member of a JV group:
    • A joint venture or its JV subsidiary that is located in Hong Kong;
    • A stateless joint venture or stateless JV subsidiary that is created in Hong Kong; or
    • A stateless joint venture or stateless JV subsidiary that is a stateless permanent establishment in Hong Kong
  • Part 4AA stateless constituent entity:
    • A stateless constituent entity that is created in Hong Kong; or
    • A stateless constituent entity that is a stateless permanent establishment in Hong Kong

The meaning of constituent entity, joint venture, JV subsidiary, stateless constituent entity and stateless permanent establishment should be read with the definitions as provided in the GloBE Model Rules.

Condition 2: MNE group being an in-scope MNE group

This condition is met if any of the following applies:

  • The MNE group to which the phase 1 applicable entity belongs is an in-scope MNE group for the fiscal year (a fiscal year that is beginning on or after 1 January 2025) corresponding to the applicable year of assessment;
  • The MNE group to which the phase 1 applicable entity belongs was an in-scope MNE group for a fiscal year (a fiscal year that is beginning on or after 1 January 2025) that is preceding the fiscal year corresponding to the applicable year of assessment.

Fiscal year corresponding to the applicable year of assessment

The fiscal year corresponding to the applicable year of assessment is the fiscal year of the MNE group within which the basis period of the year of assessment of the phase 1 applicable entity ends. Fiscal year generally refers to an accounting period with respect to which the UPE of the MNE group prepares its consolidated financial statements.

“Once-in, always-in” mechanism

The mandatory e-filing requirement adopts the “once-in, always-in” mechanism. If a phase 1 applicable entity is mandated to e-file its profits tax return for a year of assessment, the entity will be mandated to e-file its profits tax return for every subsequent year of assessment. This is irrespective of whether or not the entity meets the two conditions as specified above for any subsequent year of assessment. This mechanism will generally apply to those phase 1 applicable entities that subsequently leave an in-scope MNE group as well as to those entities whose MNE groups subsequently become out of scope.