What Does Hong Kong's Profit Tax Return Mean?
Hong Kong's business-friendly corporation tax structure, absence of capital gains tax, and territorial approach to salary tax make it an attractive destination for investors from throughout the world. The corporate tax is solely applied to earnings derived from operations conducted in Hong Kong. Hong Kong employs three distinct taxes as opposed to a single income tax:
- Salaries Tax: Your net chargeable income, which is your assessable income less any personal deductions and allowances, is what determines this tax. The tax rate on assessable income after deductions is either a flat 15% or a range of 2% to 17%, depending on which is lower.
- Profits Tax: Hong Kong's unincorporated firms enjoy the advantages of a two-tier tax structure. Any profits over HKD2 million are subject to ordinary 15% taxation, with the first HKD2 million of profits subject to a reduced 7.5% rate.
- Property Tax: Rental income is subject to a flat 15% tax after a 20% standard deduction.
Every tax is computed separately. Permanent and temporary residents of Hong Kong may choose personal assessment if it offers greater benefits by combining all sources of income or losses. The many forms and procedures involved in submitting these taxes, sometimes known as profits tax returns, can be very complicated. The purpose of this article is to provide all the information regarding profits tax returns, including forms and filing procedures.
Who Should File Profits Tax Returns with the Inland Revenue Department?
All companies operating in Hong Kong, regardless of size, partnerships, or independent contractors, are required to submit Profits Tax Returns utilizing Inland Revenue Department forms. Tax relief comprises a basic allowance of HKD 132,000 or HKD 264,000 for married individual with a non-taxable spouse or joint assessment. Furthermore, for the 2021–22 tax year, a one-time tax rebate of up to HKD 10,000 will reimburse 100% of the final tax on personal assessment and salary tax.
Three forms are available from the Inland Revenue Department for profit tax returns:
- BIR-51 for corporations
- BIR-52 for non-corporate entities (like partnerships),
- BIR-54 for non-residents with income from business activities in Hong Kong.
One Tax Return – Individuals (BIR60) that sole proprietors can use. The eTax portal of the Inland Revenue Department is used for filing.
When Do You Start Filing Profits Tax Returns?
Within 18 months of establishment, newly registered Hong Kong companies are required to file Profits Tax Returns. A corporation that was incorporated on January 1, 2020, for example, would have to submit by June 2021. Annual filings are made after that. Businesses that operate abroad or in Hong Kong are required to disclose their accounts in their Profits Tax Returns.
Companies file Form BIR51 with certified public accountant-audited financial statements. Small businesses with annual gross incomes under HKD 500,000 only need to file Form BIR51 and any additional forms; however, the data must still originate from audited financial statements. It is advisable to have copies on file in case authorities make requests.
Profit tax returns are normally sought by the Inland Revenue Department on the first working day of April, with a filing date one month from issuance. The accounting year for each corporation may differ, but the fiscal year runs from April to March.
What Are Supplementary Forms for Profits Tax Returns?
Supplementary forms are now available for completion by individuals seeking tax benefits or beneficiaries of preferential tax treatment as of April 2019. Currently, there are ten forms available: ship owners, professional reinsurers, authorized captive insurers, qualifying corporate treasury centers, qualifying aircraft lessors, qualifying aircraft leasing managers, two-tiered profits tax rates, transfer pricing, R&D expenditure, and energy-efficient building installation.
Can I Claim Exemption from Profits Tax Returns?
Companies operating outside of Hong Kong can apply for Profits Tax Exemption to benefit from tax-free profits—even if they return the profits to Hong Kong. This includes:
- Turning in the audited financial statements and the profits tax return.
- Filing an application for offshore status within 18 months after the first Profits Tax Return.
After reviewing the submitted materials and the corporate structure, the Inland Revenue Department sends out an offshore claim inquiry letter. Important company workers could have more paperwork to file. Once granted, offshore status necessitates the yearly declaration of any material modifications to the status or structure of the organization.
Can I Get an Extension for the Submission of Profits Tax Returns?
Extensions are given for good cause. Every year at the beginning, the Inland Revenue Department typically launches a Block Extension Scheme that enables businesses to request file extensions. Failure to meet deadlines may result in fines of up to HKD 50,000 and three years in prison.
Can I Declare the Profits Tax Return as NIL?
You may file a NIL Profits Tax Return if your business did not operate or transact any business throughout the assessment year. This signifies that no business operations occurred in or outside Hong Kong.
Prism Consultancy can help you navigate Hong Kong's business landscape. By leveraging their expertise in visa and immigration services, company incorporation, and other professional consultancy services, Prism Consultancy ensures smooth and compliant business operations in Hong Kong.
They can assist you with:
- Company incorporation: Helping you set up your business in Hong Kong, guiding you through the incorporation process and ensuring all necessary steps are followed.
- Visa and immigration: Facilitating the visa application process for foreign nationals, ensuring a smooth transition for those looking to work or start a business in Hong Kong.
- Tax compliance:Advising on Hong Kong's corporate tax system, helping you understand and benefit from the favorable tax structure, including no capital gains tax and the various income and property tax options.
- Profits Tax Returns: Simplifying the process of filing Profits Tax Returns and ensuring that you take advantage of allowances and rebates available to reduce your tax burden.
Prism Consultancy streamlines these complex processes so you can focus on growing your business in Hong Kong.