Different Date Scenarios Regarding PTR and How to Resolve Them (After 18 Months)
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Even though taxes in Hong Kong are significantly lower compared to most other regions in the world, some business owners still have trouble paying them properly.
One problem is related to profits tax returns and supplementary forms that should be submitted with it. Another problem is that business owners fail to meet the deadline due to the bad understanding of the procedures and laws.
If you carry on a trade, profession, or business in form of a corporation, partnership business or if a non-resident person is chargeable to profits tax in your name, you need to complete the profits tax return and any required supplementary form and file that to the Inland Revenue Department (IRD) by the due date.
To better understand this process and keep your business operations completely compliant, below you will find valuable details about various date scenarios for profits tax return (PTR) and how you can resolve them.
PTR for a newly registered business
In general, a newly-registered business receives its first profit tax return in Hong Kong around 18 months after the business commencement date or the incorporation date.
So, if you have incorporated the company on 1 January 2019, for example, you shall receive its first PTR from the authorities somewhere in June 2020.
Additionally, if your business has started with its operations either in Hong Kong or abroad during this period, you need to prepare all the financial accounts for it.
It doesn’t matter if the business operations have been conducted overseas, the company is still required to report its accounts and any profits made in the annual reports to claim the profits tax exemption.
Moreover, it is also necessary to complete the PTR and submit it together with the supporting documents within three months from the date of issuance.
This usually includes the Audit Report of the financial statements which can only be prepared by a Hong Kong Certified Public Accountant. A professional CPA can help with preparing the audited financial statements and completing the PTR filing for the company.
When to file PTR
In general, profits tax return and any required supplementary forms should be filed within 1 month from the date of issue. You shall find the compliance date of submission on page 1 of the profits tax return.
To promote electronic filing, the Department grants, on request, a further extension of 2 weeks after the normal due date subject to the condition that small corporations and small partnership businesses file the profits tax returns online.
If your accountant has applied for an extension to file the 2019/20 profits tax return under the Block Extension Scheme, the due date is extended as follows:
- For N Code Returns (Accounting Date between 1 April to 30 November): 30 June 2020 (extended due date), 14 July 2020 (e-filing);
- For D Code Returns (Accounting Date between 1 to 31 December): 17 August 2020 (extended due date), 31 August 2020 (e-filing);
- For M Code Returns (Accounting Date between 1 January to 31 March): 16 November 2020 (extended due date), 30 November 2020 (e-filing);
- For M Code Returns and Current Year Loss Cases: 1 February 2021 (extended due date), 1 February 2021 (e-filing).
Following the first few weeks of every year, IRD publishes a circular letter to tax representatives on the IRD website. This letter contains details regarding the block extension scheme lodgement arrangements for the year and how the block extension can be applied for.
How to apply for an extension for the submission of return?
There is a general rule that a further extension of time beyond the extended due dates under the Block Extension Scheme shall only be granted in the most exceptional circumstances.
If you decide to make such a request, it is required to do so in writing with an explanation of why lodgement can’t be made promptly along with supporting evidence.
Do not assume that any further extension shall be granted. Instead, wait for the approval while preparing the documents you have.
What are the consequences of failing to file your tax return on time?
Should you fail to file your tax return on time, you could face a financial penalty and you could even be prosecuted.
Keep in mind that even when you deal with the penalty, you will most likely be required to pay more tax in the future since you have already made an offense.
When you don’t provide the relevant details, the Assessor issues an estimated assessment and demand for tax without granting your allowance entitlements and deductions in respect of contributions to the MPF (the Mandatory Provident Fund), approved charitable donations, expenses of self-education and home loan interest, and so on.
So, the bottom line is that the Ordinance needs to be paid in the manner directed in the notice of assessment on or before the specified date. Fail to do so and your business shall be regarded as in default.
Fail to pay the first installment on time and the second one will become due immediately. The whole balance of the total tax payable in the notice remaining unpaid is deemed to be in default and shall be recoverable immediately.
The Commissioner of Inland Revenue shall initiate recovery actions as authorized by Part XII of the Inland Revenue Ordinance for recovering the total outstanding amount.
What businesses are not required to submit returns annually?
The IRD usually doesn’t call for the annual submission of profits tax returns in instances where the trade, profession or business carried does not give rise to assessable profits.
Another instance is when the business has not started its operations or has stopped and not yet restarted them.
Whichever the case, the requirement to lodge the return has to be fulfilled as long as you receive a profits tax return that may be issued occasionally in the course of reviewing your future tax potential.
How to file PTR?
Since we are discussing a newly-registered business, as already mentioned, the Inland Revenue Department issues the profits tax return 18 months following the date when the business started operating or the date of the incorporation.
As a business, you must file a complete set of returns that include the following documents:
- Specific profits tax return form stipulated and issued by the Inland Revenue Department
- Certified copy of the Balance Sheet, Auditor’s Report, and Profit and Loss Account about the basis period
- Supplementary form as issued by the IRD for the tax data and financial data
- Tax computation displaying how the amount of Assessable Profits or Adjusted Loss has been accumulated
- Various other documents and information as specified in the Notes and Instructions
The corporations whose total gross income does not exceed HKD 500,000 for the basis period are defined as small corporations and they only need to file their respective profits tax return form and supplementary form.
It is not required to submit the other supporting documents listed above. However, you must prepare the documents before you complete the return. Also, keep in mind that the Department can call in for additional information in some cases.
Budget concessionary measures
The Financial Secretary proposed a one-off reduction of profits tax, salaries tax, and tax under personal assessment for the year of assessment 2019/20 by 100%, subject to a ceiling of $20,000 per case. This, logically, applies to the 2020-21 budget draft.
When it comes to the profits tax, the tax reduction ceiling is applied to each business.
Important notice: Taxpayers are to complete the 2019/20 tax returns as usual. The IRD shall trigger the tax reduction in the final assessment for the 2019/20 year of assessment.
Tips for filing PTR
- Make sure that you inform the IRD promptly if your correspondence address has changed.
- Check your copy of ‘Employer’s Return of Remuneration and Pension’ carefully. If you have any uncertainties, check in with your employer and inform the IRD if necessary.
- When you file your tax return, do not attach supporting documents for deductions claimed. But do not get rid of those documents either. They are to be retained for 7 years of examination if asked for.
- When submitting your completed tax return to the authority by post, insert the proper stamp according to the category of postage just to ensure that the delivery goes smoothly.
- If you happen to realize that you have made a mistake, inform the IRD as soon as possible. State your name, phone number, file number, the relevant year of assessment and details of your amendments, and sign your rectification notice.
File your PTR on time
For everyone who wants to be a compliant taxpayer, it is crucial to file your tax return on time.
The information you provide helps the Assessor to prepare your assessment correctly. Therefore, your claims for deductions for tax allowances, charitable donations, and home loan interests, are taken into account duly.
Even those who have earned no income and do not have to pay tax, or have duties to take care of, if they receive a tax return from the IRD, they are to complete it and send it back on time.
Staying compliant and thus supporting the tax system of Hong Kong means that you are also helping your business and everyone else involved in the business ecosystem of the region.
When you file your taxes on time, you keep the system working smoothly. After all, remember that Hong Kong has one of the most attractive tax systems in the world. Finally, if you need any help with tax or accounting, do not hesitate to seek expert help from Sleek!