[Pillar Two] Attention, Groups with Annual Revenue of RMB 6 Billion: From 2025, Missing Any One of These Three Hong Kong Filings Could Multiply Penalties Five- to Sixfold

Introduction

Many Mainland Chinese groups have a blind spot: they may be industry giants at home but have only a small Hong Kong subsidiary generating annual revenue of just a few million to HKD 10 million. They therefore assume, “Compliance in Hong Kong has little to do with us.”

That assumption could become costly from 2025. Hong Kong determines whether you are a “large group” by reference to the entire group’s consolidated revenue—not the size of the Hong Kong company. Once the threshold is met, three new tax compliance filings apply. These filings are interconnected: omit one, and the other two may not reconcile, allowing penalties to accumulate.

First, determine whether you are actually a “large group”

There is essentially one threshold:
Group annual revenue ≈ HKD 6.8 billion ≈ RMB 6 billion ≈ EUR 750 million

There are two common traps:
First, the test is based on the “entire group’s consolidated revenue.” The calculation is made from the perspective of the group’s consolidated financial statements, not by looking at the size of the Hong Kong company alone. Even if the Hong Kong subsidiary has annual revenue of only a few million dollars, the group is still a “large group” if its total revenue has already exceeded RMB 6 billion.

Second, “revenue” includes both operating and non-operating income. All of it is counted; the test is not limited to revenue from the principal business.

State-owned enterprises, central state-owned enterprises, and commodity-trading groups can cross the threshold without realising it. Listed companies can verify the figure directly by checking consolidated revenue in their annual reports.

Once the threshold is met, none of the following three requirements can be overlooked:
 

Measure 1: 15% Global Minimum Tax—Most Tax Concessions for Large Groups Are Effectively “Wiped Out”

This is the most consequential measure.

Hong Kong formally legislated to introduce the Pillar Two (BEPS 2.0) global minimum tax with effect from 1 January 2025 and completed all related legislative provisions in May.

The logic is straightforward: once the group meets the threshold, its effective tax rate cannot be lower than 15%.

Income previously covered by an offshore exemption and taxed at 0% must now be topped up to 15%. Income already taxed at 16.5% remains subject to 16.5% and is unaffected.

Tax-saving tools previously used by large groups—including offshore exemptions, the 5% R&D concessionary rate, the 0% shipping rate, and various value-based deductions—largely cease to provide a benefit. The floor is 15%, which is not far below Hong Kong’s standard Profits Tax rate of 16.5%.

This does not apply only to Hong Kong companies.

If the group has low-tax companies in the BVI, the Cayman Islands (0%), Dubai (0% or 9%), or Macao (12%), and those companies have substantive operations and profits, their tax must likewise be topped up to 15%. Tax authorities worldwide have reached a broad consensus on this issue, and the Hong Kong Inland Revenue Department may directly impose top-up tax in respect of your Cayman Islands or Dubai companies. If 9% has already been paid in Dubai, only the remaining 6% needs to be topped up.

This also creates a separate filing obligation, independent of the ordinary Profits Tax return. Within 15 months after the end of the financial year, the tax authority must be informed which jurisdictions have not reached the 15% rate and how much top-up tax is required. The first filing will be made in 2026 for the 2025 financial year, so there is still some preparation time for this requirement.

Measure 2: Country-by-Country Reporting—Stop Betting That the Tax Authority Will Never Find Out

Country-by-Country Reporting (CbCR) is not new; it has been required since 2018 or 2019. In practice, however, many Mainland Chinese groups have never completed the Hong Kong filing. Their accountants often focus only on auditing the Hong Kong subsidiary and do not raise the issue.

The three most common misconceptions are:

“My Hong Kong company is small, so no filing is required.” Wrong—the relevant figure is the entire group’s HKD 6.8 billion revenue threshold.

“We have already filed in Mainland China, so nothing is required in Hong Kong.” Wrong—at a minimum, a notification must be filed in Hong Kong. If the report has already been submitted in Mainland China, only the Hong Kong notification is required; the report does not have to be filed again.

“The requirement applies only if there are related-party transactions.” Wrong—CbCR is based on the overall size of the group, not on whether the Hong Kong company has related-party transactions.

The penalties are significant: up to HKD 50,000 for one year, plus HKD 500 per day. If the filing should have been made every year from 2019 to the present, the cumulative exposure may be three to six times as much.

There is, however, one critical practical distinction: voluntary remediation and reactive remediation can lead to dramatically different outcomes.

Voluntary remediation: you approach the tax authority and explain that the filings were missed in previous years and are now being rectified. The issue is usually more manageable, and there may be room to seek mitigation or a waiver.

Reactive remediation: you wait until the tax authority contacts you before rectifying the filings. In that case, the likelihood of penalties is much higher.

The tax authority can easily follow the trail: once you start filing correctly next year, it may naturally review whether filings were made in earlier years. Where voluntary remediation is possible, act early.

Remember the deadlines: the CbCR notification is due within three months after the year-end, while the CbC report is due within 12 months. Mainland Chinese groups commonly have a 31 December year-end, so the notification deadline is generally around 31 March. From a technical perspective, an e-Cert electronic identity must be obtained in Hong Kong, and the report must be submitted in XML format. An Excel file cannot be uploaded and must be converted using specialised software.

Measure 3: Electronic Filing of Profits Tax Returns

At present, the vast majority of companies—around 99%—still submit paper Profits Tax returns. However, from the next filing cycle, large groups will be subject to mandatory electronic filing for years of assessment commencing on or after 1 April 2025.

They must switch to electronic filing; there is no opting out.

The most difficult part is data tagging: every figure in the audited financial statements and Profits Tax computation must be tagged to tell the tax authority whether it represents a fixed asset, a particular category of expenditure, and how it was derived.

This means full transparency of data. Tagging requires substantially more information to be provided to the Hong Kong Inland Revenue Department, making it easier to verify the minimum tax rate and use big-data analysis to identify issues, much like tax reviews in Mainland China. In addition, the workload doubles. A Profits Tax return that previously took three hours to prepare may take six hours under electronic filing.

For large groups, the scope for achieving tax savings in Hong Kong has therefore been compressed to an extremely low level. What remains is lawful and compliant tax planning.

Why the three requirements must be handled together

They cross-check one another. For example, if you complete the electronic filing but do not file the CbCR notification, the data effectively suggests that the group has not exceeded HKD 6.8 billion. That may immediately conflict with the scale reflected in the other filings and expose the issue. The three requirements are linked: once one is addressed, the other two cannot be omitted.

The relative level of risk can be compared as follows:

Previously (2019–2025): at most, a CbCR filing might have been missed, and the penalties and surcharges were still relatively manageable.

Now (from 2025): if electronic filing, CbCR, and the minimum-tax filing are all missed, the combined penalties and surcharges will no longer be a minor amount.

A reminder for tax firms, accountants, and law firms

For service providers, the first question to ask every client from now on is:
Has the entire group’s annual consolidated revenue exceeded HKD 6.8 billion?

Auditors generally focus only on the company they have been engaged to audit and may not consider the size of the wider group. As a result, clients may not realise that the threshold has already been exceeded. If the issue is not raised and the client is penalised, the service provider may ultimately be held responsible. For listed companies, the consolidated revenue in the annual report can be checked directly—remember to include non-operating income.

Final thoughts

The year 2025 is a dividing line. For large groups, Hong Kong is no longer simply a “low-tax jurisdiction”; the new normal is a 15% global minimum tax combined with fully transparent filing.

First determine whether the group exceeds the HKD 6.8 billion threshold. Any missed filings should then be rectified proactively and without delay—especially CbCR, because voluntary remediation is always preferable to reactive remediation. Although it may be late to restructure, there is still room for optimisation. The real risk is not having to pay tax; it is failing to realise that tax and filing obligations exist until the tax authority comes knocking.