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Hong Kong Corporate Tax Filings

4 minute read

 

Hong Kong is one of the premier business destinations for a number of enterprises across the world. However, when you decide to set up a business here, you cannot forget to do your research into corporate tax filing in Hong Kong. There is a highly attractive tax regime in Hong Kong, including profit tax stamp duty, with a low rate of personal and corporate tax.

Companies are required to pay profit tax in Hong Kong. The tax is calculated at a rate of 16.5% of assessable profits. Apart from this, there is no capital gains tax. In simple words, the tax is computed only on gains made from the sale of bonds, stocks, precious metals, and other assets, such as property.

A business does not need to pay any tax on profits made abroad. This includes profits remitted to Hong Kong.

Overview:

Territorial corporate tax system

In Hong Kong, a territorial system of taxation is applicable to businesses. This means tax is levied only on profits made in Hong Kong. No business profit sourced outside of Hong Kong will accrue a profits tax.

Further, if you run a business in Hong Kong but profits are sourced elsewhere, no tax will accrue on the profit made outside of the jurisdiction. If you are a Hong Kong resident who sources profits outside of the administrative jurisdiction, you will not be liable for any tax. Similarly, if you are not a resident of Hong Kong but do business here and source profits within the jurisdiction, the law requires you to pay profits tax here.

  • Hong Kong corporate tax system is free from any sales tax or value-added taxes.
  • There is no withholding tax on interest and dividends. Dividends from local companies that accrue taxes are exempted from these.
  • Dividends from local companies that accrue taxes are exempt from these. Dividends from overseas companies are not subject to any tax in Hong Kong.

All in all, a business is liable for paying Hong Kong Profits Tax on the premise that:

  • The business is carried on in Hong Kong and makes profits.
  • The profits are sourced locally for a company registered in Hong Kong.

Determining taxable profits

A company’s Assessable Profits are taken into consideration to determine net profits arising in or derived from within the jurisdiction for the basis period. However, it does not include profits arising from the sale of capital assets.

Assessable Profits Do Not Include:

  • Interest on Tax Reserve Certificates
  • Dividends subject to local profits tax and received from a corporation
  • Income from interest and trading profits sourced from long term debt instruments
  • Any amount in the profit on which profit tax is already paid
  • Any profit earned from a bond issued as part of Government Bonds (Cap. 64) and Loans Ordinance (Cap. 61). Additionally, it also includes any profit made from a bond issued as an Exchange Fund debt instrument or dollar-denominated multilateral agency debt instrument.

When is Hong Kong corporate tax filing returns due

All profits tax returns are submitted to the Inland Revenue Department (IRD) within one month of issuance. The returns depend on the type of your business:

  • Non-Resident Persons (BIR54)
  • Corporations (BIR51)
  • Persons other than Corporations (BIR52)

The date of submission is mentioned on the first page of the return. For electronic filing, the deadline may be extended by 2 weeks.

The failure to file a tax return by the due date makes you liable to more taxes and /or subject to penalty. In that case, the assessor issues an estimated assessment.  This could mean having to pay more taxes.

Tax incentives

In Hong Kong, profits tax exemption is available on eligible onshore and offshore funds generated within the jurisdiction. Here are examples of tax incentives:

  • Concession on mutual funds and trusts
  • Exemption from tax for interest earned accrued from any deposit after 22 June 1998. The deposit must be placed with an authorized institution in Hong Kong. However, this excludes interest earned by a financial institution.
  • Capital spent on the renovation of business premises during the 5-year write-off period.
  • Investment in a manufacturing or production business of high value. This exemption extends to any cost of purchasing new plant and equipment related to manufacturing. It also includes hardware and software owned by end-users.
  • Capital expenses incurred on any environmentally friendly vehicles and machinery.
  • Capital expenses on the purchase of environmental protection installations within a year of assessment beginning on 1 April 2018 or after.
  • Profits tax deduction for capital spending on the purchase of environmentally friendly vehicles, effective from the assessment year 2010/11.
  • All funds operating in Hong Kong are eligible for profits tax exemption on transactions, effective since 1 April 2019.
  • A fund qualifies for profits tax exemption on investments made overseas and locally.
  • Tax deduction for capital spending on intellectual property rights, effective since 1 April 2018.

Assessment year in Hong Kong is the year ending 1st April-31st March. The assessable profits for an assessment year are based on the accounting period during that period.

Corporate profits tax returns are issued on the first working day of April of the next assessment year.

The IRD issues profits tax return 18 months after the date of business commencement or incorporation.

Every business that falls under the tax ambit must submit all of the following issued by the IRD, including:

  • Profits tax return form
  • Supplementary form for tax data and financial data
  • Tax computation details
  • Details of profit & loss statement, balance sheet, and auditor’s report of the assessment year
  • Any other document or detail required under the Notes and Instructions.

As far as small corporate houses are concerned, whose total gross income is less than HKD 500,000 during the basis period, they are required to file profits tax return form along with the supplementary form. Small corporations are exempt from submitting any of the above supporting documents, though all of these details must be prepared before the return is completed.

Next steps

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