Hong Kong’s business environment is highly recognized by the outside world. One of the reasons is that Hong Kong’s profits tax system is simple and affordable, which is good news for many business owners who intend to develop in Hong Kong. In the profits tax declaration procedure, you must pay attention to paying profits tax within the time limit to avoid being punished by the authorities and investigated for the tax liability. Therefore, this article will introduce the Hong Kong profits tax system and related materials one by one, so that taxpayers can prepare for tax declaration and audit.
Do you have to pay profits tax for running a business?
Basically, the Inland Revenue Ordinance states that the taxable scope of profits tax covers any person. If they carry on a trade, profession, or business in Hong Kong in any form, including corporations, partnerships, trustees, or bodies, all profits derived therefrom (other than profits from the sale of capital) are subject to Hong Kong Profits Tax and are not Profits generated in Hong Kong by persons resident in Hong Kong are also taxable.
In addition, if someone plans to “sell a building or property” as a profit-making plan, this will also be considered a business operation and the profits will also be taxed. Self-employed persons who work for themselves are also liable to pay profits tax.
What business is subject to profits tax?
In addition to the business operation that everyone agrees on, there are many situations that will be regarded as operating an industry, profession, or business in Hong Kong, and the business income generated in it will be subject to taxation. Further examples are as follows:
• Proceeds from film/television films, documentaries, sound recordings, or promotional materials released in Hong Kong;
• Proceeds from the use or authorized use of patents, designs, trademarks, copyrights, etc. in Hong Kong (deductible for uses outside Hong Kong).
• Fees paid to performers for assignments or agreements to assign performers’ rights;
• Grants, allowances, or financial assistance received for carrying on business in Hong Kong;
• Payments received in the form of lease fees, rent, or other similar forms of movable property permitted or authorized to be used in Hong Kong.
What is the Hong Kong Profits Tax rate?
Starting from the 2018/19 and subsequent years of assessment, the Hong Kong government has changed the “general tax rate” of profits tax to a “two-tier tax rate” to reduce the tax burden of local SMEs, to maintain a simple and low-tax tax system. Promote business development.
In the “two-tiered tax rate”, the tax rate for the first HK$2 million of assessable profits of all corporate businesses is 8.25%; the tax rate for the excess portion is 16.5%.
For persons other than corporations, the tax rate for the first HK$2 million of assessable profits is 7.5%; for the excess, the tax rate for assessable profits is 15%.
How to file a Profits Tax Return?
When filing tax returns, the Inland Revenue Department issues a circular letter to tax representatives at the beginning of each year. When the Profits Tax Return is received, the taxpayer should submit the tax return within 1 month of the date of issuance (printed on page 1 of the Profits Tax Return). The tax return is completed and submitted to the Inland Revenue Department, which may require the submission of supplementary information or supporting documents other than the tax return, such as audit reports, profit tax calculation forms, etc.
By the way, in addition to completing the profits tax return, to enjoy various profit tax preferential policies, taxpayers may need to download more supplementary forms from the website of the tax bureau, and the relevant discounts can only be applied after completing the supplementary forms.
The above information is for reference only. If you have any questions about tax declaration and accounting, we welcome your inquiries.