Filing Profits Tax Returns (PTR) is a key compliance requirement for businesses operating in Hong Kong. Companies must submit the BIR51 form, officially known as the “Profits Tax Return – Corporations,” to report their assessable profits and determine their tax obligations with the Inland Revenue Department (IRD).
Understanding Hong Kong’s tax regulations and filing requirements is crucial for staying compliant and avoiding penalties. This guide will walk you through the essential steps, deadlines, and key considerations for filing your Profits Tax Return efficiently.
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What is a Profits Tax Return?
A Profits Tax Return is a mandatory declaration submitted to the IRD in Hong Kong. This declaration reports the assessable profits, or adjusted losses, earned by your business within a specified accounting period (known as the year of assessment). It provides the IRD with the necessary information to determine your business’s Profits Tax liability.
3 Types of Profits Tax Returns
Businesses in Hong Kong must file one of three types of Profits Tax Returns (PTRs)based on their business structure and tax residency status. Below is a guide to help you determine which form you need to file and who is exempt from each.
1. Profits Tax Return for Corporations (BIR51)
For Hong Kong-incorporated companies and foreign businesses with a local presence
All limited companies registered in Hong Kong or foreign companies operating in Hong Kong must file the BIR51 form to report their assessable profits and determine their tax liability. This applies regardless of whether the company is active, small, or dormant; if the Inland Revenue Department (IRD) issues a BIR51, it must be completed and submitted.
What is the BIR51 form?
The BIR51 is the standard Profits Tax Return for corporations in Hong Kong. It is used by companies to report their assessable profits, allowable deductions, and final tax liabilities to the Inland Revenue Department (IRD).
Who should file a BIR51?
- All limited companies incorporated in Hong Kong
- Foreign companies with a business presence in Hong Kong (e.g., branches, offices, or operations generating assessable profits)
- Dormant companies (They may still need to file a NIL return if issued a BIR51 form by the IRD)
Dormant Companies and NIL Profits Tax Returns
Even if a company is dormant (inactive) and has no assessable profits, it must still file a NIL Profits Tax Return if it receives a BIR51 form from the IRD. Failure to submit a required return can result in penalties, even if no tax is due.
Who should NOT file a BIR51?
- Sole proprietors and partnerships (They should file BIR52)
- Non-residents with no permanent presence in Hong Kong (They should file BIR54)
Supporting documents required for BIR51
As of April 1, 2023, all required supplementary forms (S1–S18 and S20) must be submitted electronically via the eTAX platform, regardless of whether you are filing the main Profits Tax Return online or by paper. Businesses that qualify for tax incentives or deductions must ensure they submit the relevant supplementary forms digitally to comply with Inland Revenue Department (IRD) regulations.
2) Profits Tax Return for Persons Other Than Corporations (BIR52)
For sole proprietors, partnerships, and unincorporated businesses operating in Hong Kong
Sole proprietors and partnerships conducting business in Hong Kong must file the BIR52 form to report their taxable income, business expenses, and assessable profits. This form applies to individual entrepreneurs and partnership firms rather than incorporated companies. If your business structure changes from a sole proprietorship to a partnership (or vice versa) during the year, your income and losses must be reported under BIR52 for the full transition year.
What is the BIR52 form?
The BIR52 is the Profits Tax Return for businesses that are not incorporated as corporations. It allows sole proprietors and partnerships to declare their taxable earnings and deductions to the Inland Revenue Department (IRD).
Who should file a BIR52?
- Sole proprietors (Individuals running a business in Hong Kong)
- Partnerships (Businesses owned by two or more people)
- Businesses that changed from a partnership to a sole proprietorship (or vice versa) during the tax year.
Who should NOT file a BIR52?
- Corporations (They should file BIR51)
- Non-residents with no permanent business presence in Hong Kong (They should file BIR54)
Supporting documents required for BIR52
- Financial statements (not necessarily audited, depending on business size)
- Business expense records
- Income records (e.g., invoices, receipts)
3) Profits Tax Return for Non-Resident Persons (BIR54)
For non-resident individuals and businesses earning Hong Kong-sourced income Businesses and individuals who earn taxable income in Hong Kong but do not have a permanent commercial presence must file the BIR54 form. This applies to foreign entities and professionals who receive Hong Kong-sourced income but do not operate a physical business in the city.
What is the BIR54 form?
The BIR54 is the Profits Tax Return for non-resident persons, used by foreign businesses or individuals earning taxable income in Hong Kong without a registered local entity or permanent presence.
Who should file a BIR54?
- Foreign businesses earning Hong Kong-sourced income without a Hong Kong company (e.g., non-resident consultants, service providers, or foreign firms receiving income from Hong Kong clients)
- Overseas professionals or freelancers generating revenue from Hong Kong clients
- Foreign landlords earning rental income from properties in Hong Kong
Who should NOT file a BIR54?
- Hong Kong-incorporated companies (They should file BIR51)
- Sole proprietors or partnerships with a Hong Kong presence (They should file BIR52)
- Businesses with a permanent establishment in Hong Kong (e.g., branches or subsidiaries, which must file BIR51)
Key considerations for BIR54 filers
- Tax liability is based on income sourced from Hong Kong, not on residency or incorporation location.
- If a foreign business has directors based in Hong Kong or its core management and control is in Hong Kong, it may not be considered a non-resident and could be required to file BIR51 instead.
How to prepare for filing a Profits Tax Return
Filing your Profits Tax Return (PTR) for the first time? Follow these steps to make the process easier:
1) Know Which Form to File
- BIR51 – For corporations
- BIR52 – For sole proprietors and partnerships
- BIR54 – For non-resident businesses earning Hong Kong income
Check if you need to submit audited financial statements (mandatory for all corporations).
2) Keep financial records organized
- Track all income and expenses throughout the year.
- Save invoices, receipts, bank statements, and contracts.
- Ensure your profit and loss statement and balance sheet are updated.
3) Understand what you can and can’t deduct
- Tax-deductible expenses: Rent, salaries, business travel, office supplies.
- Non-deductible expenses: Personal spending, fines, capital purchases.
4) Check for tax exemptions or offshore income
- Income from outside Hong Kong may be tax-exempt under Hong Kong’s territorial tax system.
- Look into tax incentives like the two-tiered Profits Tax rates or R&D deductions.
5) Use accounting tools or get professional help
- Consider accounting software to track finances easily.
- If unsure, consult a tax expert to avoid errors or missed deductions.
6) Plan for your tax payment
- Estimate your tax liability in advance to avoid cash flow issues.
- Be aware of payment deadlines and whether provisional tax applies.
7) File on time and keep records
- Submit before the deadline to avoid penalties.
- Use Hong Kong e-Tax for online filing.
- Keep copies of your tax return for at least seven years.
Why File Online via eTAX?
The IRD encourages businesses to file their Profits Tax Returns online through the eTAX platform. Benefits of eTAX filing include:
- Extended deadlines (one extra month compared to paper filing)
- Instant confirmation of submission
- Easier record-keeping and retrieval of past tax filings
- Reduced paperwork and streamlined communication with the IRD Businesses can register for eTAX via the IRD’s official website to take advantage of these benefits.
By staying organized and filing on time, you’ll avoid stress and ensure compliance with Hong Kong tax laws.
When do you need to file a Profits Tax Return?
The Inland Revenue Department (IRD) issues Profits Tax Returns (PTRs) each year, and businesses must file them within the given deadline. Here’s how to know when to file:
1) IRD Notification
- The IRD sends out PTR forms every year (usually on the first working day of April).
- If you receive a PTR, you must complete and submit it by the deadline, even if your business made no profit or had no activity.
2) Filing Deadlines
- The standard deadline is one month from the date on the PTR form.
- If you have a tax representative, you may qualify for an extension under the Block Extension Scheme, based on your accounting year-end:
- Accounting Date: April 1 – Nov 30 → File by April 30
- Accounting Date: Dec 1 – Dec 31 → File by mid-August
- Accounting Date: Jan 1 – Mar 31 → File by mid-November
Extra One-Month Extension for eTAX Filers Businesses that file their Profits Tax Return electronically through eTAX may receive an additional one-month extension beyond the standard deadline. This extra time can be helpful in ensuring accurate submissions and avoiding late penalties.
3) New Businesses
- Newly registered companies must file their first Profits Tax Return within 18 months of incorporation.
- The IRD will issue the first PTR around 18 months after incorporation, with a three-month filing deadline.
4) If You Haven’t Received a PTR
- If your company is active but hasn’t received a Profits Tax Return, you should inform the IRD and request one.
- If your business is dormant, you may still be required to file a nil return if you receive a PTR.
What happens if you miss the deadline? If a Profits Tax Return is not filed on time, the IRD may impose the following penalties:
- Fines up to HK$50,000
- Additional tax charges up to three times the underpaid tax
- Possible prosecution with imprisonment of up to three years for severe non-compliance
To avoid penalties, businesses should ensure timely filing of profit tax returns and maintain accurate records to support their tax filings.
Key takeaways
- Check your mailbox in April for your PTR.
- File within one month of receiving the form (or extended deadlines if eligible).
- New businesses must file within 18 months of incorporation.
- If you haven’t received a PTR but should file, contact the IRD.
- Late submissions may result in penalties.
Profits tax return filing deadline table
Type of Business | Filing Deadline | Notes |
Standard Profits Tax Return | 1 month from the issue date | Issued in April each year. Extensions may apply. |
Newly Incorporated Companies | Within 3 months from the issue date | IRD issues the first PTR ~18 months after incorporation. |
Accounting Year End: April – Nov (“N Code”) | April 30 of the following year | Extended deadline under Block Extension Scheme. |
Accounting Year End: Dec (“D Code”) | Mid-August (exact date varies annually) | Extended deadline under Block Extension Scheme. |
Accounting Year End: Jan – Mar (“M Code”) | Mid-November (exact date varies annually) | Extended deadline under Block Extension Scheme. |
Businesses Filing Online (e-Tax) | Additional 1-month extension | Online filing allows extra time compared to paper filing. |
Dormant Companies | If issued a PTR, must file it | Even if inactive, a nil return may be required. |
What if you miss the Profit Tax Returns’ submission date?
Businesses needing more than one month to file a Profits Tax Return can request an extension. The Inland Revenue Department (IRD) issues a Circular Letter at the start of each year outlining the Block Extension Scheme, which provides extended deadlines and updates.
Further extensions beyond the Block Extension Scheme are granted only in exceptional cases. Requests must be submitted in writing with a valid explanation and supporting documents.
How do you calculate Profit Tax Return for filing in Hong Kong?
A company’s net income covers all types of income, whether it is or not derived from the main business, and includes but is not limited to the following:
- Interest income
- Rent income
- Intellectual property rights royalties
- Profits arising from operating a company in Hong Kong
- Grants, subsidies, or other financial assistance
- Bills of exchange or certificates of deposit
- Refunds of contributions to retirement schemes
Two-tiered Profits Tax rates Hong Kong has a Two-Tiered Profits Tax Regime that benefits small and medium-sized businesses. Under this system:
- The first HK$2 million of assessable profits is taxed at 8.25% for corporations and 7.5% for unincorporated businesses.
- Profits above HK$2 million are taxed at the standard rates of 16.5% (corporations) and 15% (unincorporated businesses). This regime aims to reduce the tax burden on SMEs and encourage business growth.
To compute a company’s taxable income, the following adjustments should be made to the company’s net income:
Step 1: Deduct non-assessable profits for tax filing purposes
Profits of non-assessable nature are deducted from the company’s net income.
Step 2: Deduct qualified business expenses
Expenses that are incurred in the production of business income are deducted.
Step 3: Deduct unutilised losses
Losses incurred can either be deducted from the company’s income in the same assessment year or carried forward and deducted from income in subsequent assessment years.
Step 4: Add balancing charges for profits tax returns
A balancing charge arises when the sale proceeds of capital assets (i.e., building, structure, plant, or machinery) exceeds its written-down value (cost of the asset minus the amount of capital allowances previously claimed).
Step 5: Deduct capital allowances
The depreciation of a fixed capital asset and expenditure incurred on purchasing fixed assets are not taxable. Instead, tax relief in capital allowances is available for initial capital expenditure and annual depreciation for wear and tear. Capital allowances are available for business premises and plant and machinery used to produce profits.
What are NIL Profit Tax Returns?
Every taxpaying entity must understand its obligations. Hong Kong’s tax system relies on taxpayers submitting accurate and timely returns to the Inland Revenue Department (IRD). A NIL Profits Tax Return (PTR) is often misunderstood. It is not exclusively for businesses that do not operate in Hong Kong. Misinterpretation can lead to penalties and legal consequences.
A business without conducting transactions during the tax assessment period should file a NIL PTR to comply with tax regulations.
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Conclusion
Hong Kong’s tax system, while seemingly straightforward with its territorial taxation, presents challenges in understanding incentives, exemptions, and loss treatments. Recent updates, like the Two-Tier Profits Tax Regime, offer benefits, but compliance is key. Staying informed about legal precedents, such as the China Mobile case, is also crucial.
Need help? Sleek ensures you meet all IRD deadlines, helps you to submit your Profits Tax Return correctly, advises on applicable tax incentives (including R&D deductions), and assesses your eligibility for offshore profits tax exemptions. Let us handle the complexities. Talk to a Sleek tax expert now! We provide reminders and guidance on all key tax deadlines.
Frequently asked questions about filing profits tax return in Hong Kong
What is the ‘Year of Assessment’?
The Year of Assessment (YA) is the 12-month period used by the Inland Revenue Department (IRD) to assess business profits for tax purposes. It runs from April 1 to March 31 of the following year.
Example: If your business’s accounting year ends on December 31, 2023, you will report your profits in the 2023/24 Profits Tax Return (which covers income earned between April 1, 2023, and March 31, 2024).
What are ‘Assessable Profits’?
Assessable Profits are not the same as total revenue. They are the portion of net profit that is subject to Profits Tax after deductions and adjustments.
How Assessable Profits Are Calculated?
- Start with Gross Profit: Revenue minus the cost of goods sold.
- Deduct Allowable Expenses: Business expenses that qualify for tax deductions, such as rent, salaries, interest, repairs, and bad debts.
- Add Back Non-Allowable Expenses: Expenses that cannot be deducted, such as private expenses, capital purchases, fines, and non-approved donations.
Final result = Assessable Profits (or Adjusted Loss). If you have a loss, it can be carried forward to offset future profits.
What is an ‘Adjusted Loss’?
An Adjusted Loss occurs when a business’s allowable deductions (business expenses) exceed its assessable income for a given Year of Assessment. This means the company made a tax-deductible loss that can often be carried forward to offset future profits, reducing future tax liability.
What happens if I have an Adjusted Loss?
The loss can be carried forward to reduce taxable profits in future years. However, unlike some other jurisdictions, Hong Kong does not allow businesses to carry losses backward to offset previous years’ profits.
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