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Profit tax – are all expenses tax deductible? (2)

While operating a business, the expenditures of taxpayers can be divided into operating nature and capital nature. Capital expenditures must be calculated based on the groups listed in Tax Rule 2 to calculate depreciation allowances. However, there are exceptions. The tax regulations allow for full deduction of capital expenditures, including manufacturing machinery, industrial installations, computer hardware and software, environmentally friendly vehicles, environmentally-related machinery and installations, etc…

Some operating expenses are stated in the tax regulations that cannot be deducted. These expenditures include worthwhile items:

• Expenses of a family or private nature

• Transportation expenses to and from the residence and the place of business operations

• Expenditure of a capital nature, or any loss or withdrawal of capital

• Costs for improvement

• The amount that can be recovered under any insurance plan or indemnity contract

• It is not an extension of rent or related expenses for the part of the premises that generates profits

• Except for the salaries tax paid on employees’ salaries, any taxes paid are not deducted

• Payment of salaries or remuneration to the proprietor and partner or the proprietor and partner’s spouse

• Pay the capital or loan interest of the proprietor and partner or the proprietor and partner’s spouse

• In addition to the provisions of Article 16AA of the Inland Revenue Ordinance, contributions to the Mandatory Provident Fund Scheme

The above information is for reference only. If in doubt, we welcome your tax inquiries

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