Pillar Two Global Minimum Tax: What It Means for Hong Kong and Cayman Fund Structures

• Standard: IAS 12 / HKAS 12 — Income Taxes (Pillar Two temporary exception and disclosures)
• Legislation (HK): Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Ordinance 2025 (gazetted 6 June 2025)
• Effective Date: 1 January 2025 (note: new definition of “Hong Kong-resident entity” has retrospective effect from 1 January 2024)
• Scope: Multinational groups with consolidated revenue ≥ EUR 750 million

The global tax landscape has shifted. The OECD’s Pillar Two global minimum corporate tax—ensuring a 15% minimum effective tax rate for large multinational groups—is now live in Hong Kong.

The Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Ordinance 2025, officially gazetted on 6 June 2025, introduced the Income Inclusion Rule (IIR) and Hong Kong Minimum Top-up Tax (HKMTT), both effective from 1 January 2025. Notably, a new definition of “Hong Kong-resident entity” was introduced with retrospective effect from 1 January 2024.

Who’s in Scope?

Multinational enterprise groups with consolidated annual revenue of EUR 750 million or more. If your group’s effective tax rate in any jurisdiction falls below 15%, a top-up tax is levied to close the gap.

In Hong Kong, affected groups must:

• Register with the Inland Revenue Department (IRD) and apply for a group code
• Assess and declare any potential top-up tax via electronic filing
• The IRD has already begun contacting potentially affected groups

The IFRS Reporting Angle

Here’s where it gets interesting for financial reporting. The IASB issued a mandatory temporary exception under IAS 12 / HKAS 12:

• Entities do not recognise deferred tax assets or liabilities related to Pillar Two top-up taxes
• But entities must disclose their estimated current Pillar Two tax exposure
• The exception is temporary—the IASB is monitoring whether a permanent solution is needed

This applies to all IFRS preparers, including Cayman-domiciled funds.

The Cayman Fund Angle

The Cayman Islands has no corporate income tax. But that doesn’t mean SPC funds are immune to Pillar Two:

• Investor-level exposure: If your fund’s investors include entities in Pillar Two jurisdictions (EU, UK, Japan, South Korea), they may face top-up tax on income earned through the Cayman SPC
• Investee-level exposure: If the fund holds interests in operating companies in Pillar Two jurisdictions, those companies’ own Pillar Two exposure becomes a risk factor for fund valuations
• Disclosure is mandatory: Even if you conclude the exposure is nil, the IAS 12 disclosure is still required in your audited accounts

What to Do

• Assess whether your group meets the EUR 750 million revenue threshold
• If in scope, register with the IRD and begin the assessment
• Include the mandatory IAS 12 disclosures in your financial statements
• For fund structures, engage tax advisors to map Pillar Two exposure across the investor and investee chain

Pillar Two is a structural change to how the world taxes multinational profits. Even if the direct impact on your entity is limited today, the disclosure requirements are mandatory—and the indirect effects through your investors and investees can be material.

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This article is for informational purposes only and does not constitute professional accounting or legal advice.