Income tax expense is recognized based on management’s best knowledge of the income tax rates expected for the financial year.

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. Additionally, upon payment of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.

Under the current tax laws of Hong Kong, TME Hong Kong is subject to Hong Kong profits tax at 16.5% on its taxable income generated from the operations in Hong Kong. Dividends from TME Hong Kong is not subject to Hong Kong profits tax.

Under the Corporate Income Tax (“CIT”) Law in the PRC, foreign invested enterprises and domestic enterprises are subject to a unified CIT rate of 25%, except for available preferential tax treatments, including tax concession for enterprise approved as “High and New Technology Enterprise” (“HNTE”) and “Software Enterprise” (“SE”), and enterprise established in certain special economic development zones. Qualified HNTE is eligible for a preferential tax rate of 15%. Qualified SE is entitled to an exemption from income tax for the first two years, commencing from the first profitable year, and a reduction of half tax rate for the next three years.

Beijing Kuwo, Yeelion Online and TME Tech Shenzhen have been recognized as HNTE by relevant government authorities and were entitled to a preferential tax rate of 15% for the years ended December 31, 2022, 2023 and 2024. For the years ended December 31, 2022 and 2023, Guangzhou Fanxing Entertainment Information Technology Co., Ltd. (“Fanxing”), a subsidiary of the Group, was recognized as HNTE by relevant government authorities and were entitled to a preferential tax rate of 15%. Guangzhou Shiyinlian Software Technology Co., Ltd. (“Shiyinlian”) was qualified as an SE and was entitled to a reduced tax rate of 12.5% for the years ended December 31, 2022 and 2023. Shiyinlian was recognized as HNTE by relevant government authorities and was entitled to a preferential tax rate of 15% for the year ended December 31, 2024.

Certain subsidiaries of the Group are entitled to other tax concession, mainly include the preferential tax rate of 15% applicable to some subsidiaries located in certain area of PRC upon fulfillment of certain requirements of the respective local government.

Furthermore, certain subsidiaries of the Group are subject to other preferential tax treatment for certain reduced tax rates ranging from 5% to 9%.

Under the current CIT Law, dividends for earnings derived from January 1, 2008 and onwards paid by PRC entities to any of their foreign non-resident enterprise investors are subject to a 10% withholding tax. A lower tax rate will be applied if tax treaty or arrangement benefits are available. Under the tax arrangement between the PRC and Hong Kong, the reduced withholding tax rate for dividends paid by PRC entities is 5% provided the Hong Kong investors meet the requirements as stipulated by relevant PRC tax regulations, such as the beneficiary owner test.

The OECD published Pillar Two model rules in December 2021, with the effect that a jurisdiction may enact domestic tax laws (“Pillar Two legislation”) to implement the Pillar Two model rules on a globally agreed common approach. A Pillar Two legislation applies to a member of a multinational group within the scope of the Pillar Two model rules (i.e., a multinational Group that has annual revenue of EUR 750 million or more in the Consolidated Financial Statements of the Ultimate Parent Entity in at least two of the four Fiscal Years immediately preceding the tested Fiscal Year), which the Group’s ultimate holding company Tencent Holdings Limited (“Tencent”) is reasonably expected to fall into. As a partially owned parent entity (“POPE”) of Tencent, it imposes a top-up tax on Group’s profits arising in a jurisdiction whenever the effective tax rate determined by the Pillar Two model rules on a jurisdictional basis is below a minimum rate of 15%.

As at December 31, 2024, the Pillar Two legislation has not yet enacted in the Chinese mainland. Some subsidiaries are located in jurisdictions where the legislation is enacted but not yet in effect, primarily Japan. Tencent and the Group are assessing their exposure to the Pillar Two legislation and estimate that it would not materially change the Group’s income tax for the year ended December 31, 2024. Since none of the Pillar Two legislation has taken effect, the Group does not recognize any current tax for the year ended December 31, 2024. Regarding deferred income tax accounting, the Group has applied the exception to

recognizing and disclosing deferred income tax assets and liabilities related to Pillar Two income taxes, as provided in the amendments to IAS 12 issued in May 2023.

The income tax expense of the Group is analyzed as follows:


	Year ended December 31,
	2022			2023		2024
	RMB’million			RMB’million		RMB’million
Current income tax		604			814		1,668
Deferred income tax (note b)		(70	)		11		(65	)
Total income tax expense		534			825		1,603

The taxation on the Group’s profit before income tax differs from the theoretical amount that would arise using the tax rate of 25% for the years ended December 31, 2022, 2023 and 2024, being the tax rate of the major subsidiaries of the Group before enjoying preferential tax treatments, as follows:


	Year ended December 31,
	2022			2023			2024
	RMB’million			RMB’million			RMB’million
Profit before income tax		4,373			6,045			8,712
Tax calculated at a tax rate of 25%		1,093			1,511			2,178
Effects of different tax rates applicable to different subsidiaries of the Group		(22	)		(34	)		(84	)
Effects of preferential tax rate on assessable profit of certain subsidiaries		(764	)		(888	)		(932	)
Expense not deductible for tax purposes		222			187			39
Income not subject to tax	-				(1	)		(61	)
Unrecognized deferred income tax assets		44			32			69
Utilization of previously unrecognized tax assets		(33	)		(45	)		(52	)
Withholding tax on the earnings remitted or expected to be remitted by subsidiaries		-			75			440
Others		(6	)		(12	)		6
		534			825			1,603

The Group’s profit before tax consists of:


	Year ended December 31,
	2022 RMB’million		2023 RMB’million		2024 RMB’million
Non-PRC		219		311		578
PRC		4,154		5,734		8,134
		4,373		6,045		8,712


	As at December 31,
	2023			2024
	RMB’million			RMB’million
The deferred tax assets comprise temporary differences attributable to:
Prepayment and other investments		144			158
Deferred revenue		17			29
Accruals		177			185
Lease liabilities		76			61
Others		13			50
Total deferred tax assets		427			483
Set-off of deferred tax assets pursuant to set-off provisions		(75	)		(61	)
Net deferred tax assets		352			422
The deferred tax liabilities comprise temporary differences attributable to:
Intangible assets acquired in business combinations		167			173
Right-of-use assets		72			58
Withholding tax on earnings expected to be remitted by subsidiaries		75			-
Others		-			28
Total deferred tax liabilities		314			259
Set-off of deferred tax liabilities pursuant to set-off provisions		(75	)		(61	)
Net deferred tax liabilities		239			198

The recovery of deferred income tax:


	As at December 31,
	2023			2024
	RMB’million			RMB’million
Gross deferred tax assets:
to be recovered after more than 12 months		33			29
to be recovered within 12 months		394			454
		427			483
Set-off of deferred tax assets pursuant to set-off provisions		(75	)		(61	)
Net deferred tax assets		352			422
Gross deferred tax liabilities:
to be recovered after more than 12 months		139			113
to be recovered within 12 months		175			146
		314			259
Set-off of deferred tax liabilities pursuant to set-off provisions		(75	)		(61	)
Net deferred tax liabilities		239			198

The movements of deferred income tax assets were as follows:


	Prepayment and other investments		Deferred revenue			Accruals		Lease liabilities			Others		Total
	RMB’million		RMB’million			RMB’million		RMB’million			RMB’million		RMB’million
At January 1, 2023		134		49			159		86			5		433
Credited/(charged) to income statement		10		(32	)		18		(10	)		8		(6	)
At December 31, 2023		144		17			177		76			13		427
Credited/(charged) to income statement		14		12			8		(15	)		37		56
At December 31, 2024		158		29			185		61			50		483

The Group only recognizes deferred income tax assets for cumulative tax losses if it is probable that future taxable amounts will be available to utilize those tax losses. Management will continue to assess the recognition of deferred income tax assets in future reporting periods. As at December 31, 2023 and 2024, the Group did not recognize deferred income tax assets of RMB122 million and RMB93 million respectively in respect of cumulative tax losses amounting to RMB597 million and RMB543 million, respectively. These tax losses will expire from 2025 to 2034.

The movements of deferred income tax liabilities were as follows:


	Intangible assets			Right-of-use assets			Withholding tax on the earnings expected to be remitted by subsidiaries			Others		Total
	RMB’million			RMB’million			RMB’million			RMB’million		RMB’million
At January 1, 2023		215			82			-			-		297
(Credited)/charged to income statement		(60	)		(10	)		75			-		5
Business combinations		12			-			-			-		12
At December 31, 2023		167			72			75			-		314
(Credited)/charged to income statement		(23	)		(14	)		-			28		(9	)
Withholding tax paid		-			-			(75	)	-			(75	)
Business combinations		29			-			-		-			29
At December 31, 2024		173			58			-			28		259