infobank>hong kong company> Taxation
HONG KONG PROFITS TAX
Scope of Charge
Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in HK are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from HK from such trade, profession or business. There is therefore no distinction between residents and non-residents.
Profits of unincorporated businesses are currently chargeable at 15% and corporation at 17.5%.
Basis of Assessment
Tax is charged on the assessable profits for a year of assessment. The assessable profits for the business which makes up annual accounts are calculated on the profits of the year of account ending in the year of assessment. In the year of assessment, a provisional charge to tax is to be paid based on the profits assessed for the preceding year. The provisional payment is applied in the first instance against Profits Tax payable on assessable profits for that year of assessment when agreed in the following year, any excess is then applied against the provisional Profits Tax payable for that succeeding year.
On cessation of a business, subject to certain circumstances where special treatment would apply, in general the assessable profits are based on the profits for the period from the end of the basis period for the previous year of assessment to the date of cessation.
Exemptions and Deductions
Generally, all expenses, to the extent to which they have been incurred by the taxpayer in the production of chargeable profits, are allowed as deductions including :-
1. Interest on funds borrowed (provided certain conditions are satisfied) and rent of buildings or land occupied for the purpose of producing the profits.
In computing the profits deduction is specifically prohibited in respect of the following :-
1. Domestic or private expenses and any sums not expended for the purpose of producing the profits.
A transfer of certain allowable head office administrative expenses by means of a charge to a local branch or subsidiary in HK would be allowed as a deduction for HK tax purposes, to the extent to which they were incurred during the basis period for the year of assessment in the production of profits chargeable to tax.
There is no time limit for any losses to carry forward. However, if a person withdraws from an unincorporated business consisting of not more than 20 partners while the loss is still unutilized, his/her share of losses ceases to be available against subsequent profits.
Plant and Machinery
However, expenditure in plant and machinery specifically related to manufacturing, and computer hardware and software, which are used by the end users can be 100% written off. The residual value of such item already in hand can also be written off immediately.
Industrial Building Allowances
Refurbishment Allowance for Hotels
A specific allowance to enable hotels to deduct refurbishment expenditure over a five year period using an annual 20% write-off.
Books and Records
All persons carrying on business in HK are required to keep sufficient records of their income and expenditure to enable their assessable profits to be readily ascertained. There are statutory requirements to record certain specified details of every business transaction. Business records must be retained for at least 7 years after the date of the transaction to which they relate.