HK Profits Tax Deadlines 2023/24: Tax on Corporate Income

The profits tax is payable by every company, which carries on trade, profession or business in Hong Kong on profits from that trade, profession or business earned in or from Hong Kong. Unless the kind of net profits is characterized by their foreign source (commonly referred to as “offshore profits“) is, usually, beyond the reach of Hong Kong’s territorial tax system even if they are locally formed companies.

Profits Tax Deadlines

After incorporation, the companies are normally tracked by the tax authority and will be sent a profits tax return form for the first year from the Hong Kong Inland Revenue Department (IRD). Nevertheless, an obligation exists even in the event that no tax return was issued to alert the tax authority if assessable profits arose.

An assessment year consists of 12 months. The assessable profit for each Year of Assessment (YA) is obtained by adjusting the accounting profit or loss of the financial year falling within that year of assessment with the relief accorded by the tax law and regulations. The month on which the accounting year finishes is the one that determines the time-limit by which the company should file its annual tax return and financial statements for each year of assessment. Typical filing deadlines are:

In principle, a Hong Kong branch of an overseas incorporated company will be taxed in the same way as a locally incorporated company, although normally a branch profit is sufficient for filing the return and an overseas head office accounts are not needed.

Owing to differences between the jurisdiction and others, as well as the fact that Hong Kong tax laws require accounting profit to be adjusted and taxable profit to be calculated, these adjustments are usually made in a separate tax computation which accompanies the tax return. Tax-exempt items include capital gains from sales of assets, profits from offshore businesses, bank deposits and dividends. 

Nevertheless, the inter-company interest in addition to other unrelated charges paid overseas is not in general allowable except when Hong Kong taxpayer is actually within intra-group financing operations and certain conditions are met. 

On tax depreciation for fixed assets, a 100% first year write off is allowed for computers, manufacturing equipment, environment friendly vehicles and certain environmental protection facilities. Also, certain intellectual property acquisition costs are incurred. Losses are also non-deductible against another companies profit within a group of companies.

The profits of corporations, which are at the disposal of taxpayers, pay tax at the corporate tax rate of 16.5%. Some tax concessions exist, for example on certain types of business operations, like the tax exemption of profits of offshore funds and profits of operating ships in Hong Kong. The Profits, as an offshore reinsurer or as a subsidiary of the chain of a Group Treasury Centre are taxed at a rate of half of the corporate tax.

A copy of the assessment note will be sent to the address stated in the filed tax return by the tax authority. For tax purposes, provisional tax will be payable together with the tax year, based on the previous year’s tax liabilities. Provisional profit tax paid will be credited towards the tax assessed on the final profits. At usual, the demand for provisional tax for the current tax year will be issued at the same time when the notice of assessment for the tax year has just expired. Personal Income Tax (PIT) and the advance due date for payment of both the final and provisional taxes are indicated on the pay as you earn (PAYE) notification.

Hong Kong persons are also liable for tax and filing obligations on royalties, which are paid to overseas entities for the use of intellectual property (normally at 4.95% of the royalties payments but a reduced rate may be applied as per a comprehensive double tax agreement / arrangement (CDTA)), and on profits of non-resident selling goods through Hong Kong consignment agents (0.5% of the gross sales proceed). The two work as the withholding taxes do.

To this day, Hong Kong has 36 partners in the CDTA: Austria, Belgium, Brunei, Canada, Czech Republic, France, Guernsey, Hungary, Indonesia, Italy, Japan, Jersey, South Korea, Kuwait, Latvia, Liechtenstein, Luxembourg, Malaysia, Malta, Mexico, the Netherlands, New Zealand, People’s Republic of China (PRC), Portugal, Qatar. The CDTA between South Korea, Latvia, Romania and Russia are not yet in force while waiting the ratification processes to be finished by the related governments Taxpayers obtaining double tax relief is accomplished by means of a tax credit for overseas taxes (which are required to be paid to a country having a CDTA with Hong Kong) on such foreign income which is subject to Hong Kong profits tax.

New legislation enacted

The following laws were passed within the last year:

• On December 15, 2023, the Inland Revenue (Amendment) (Disposal Gain by Holder of Qualifying Equity Interests) Ordinance 2023 was gazetted with the aim of implementing the Enhancement Scheme for onshore equity disposal gains from 1st January 2024.
• The Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) The ordinance was gazetted on the 8th of December 2023 to fine-tune the existing Foreign-Sourced Income Exemption regime so that it can cover assets other than equity interests starting from the 1st of January 2024.
• The Stamp Duty (Amendment) (Stock Transfers) Ordinance 2023 was gazetted on 16 November 2023, the measure being to reduce the rate of stamp duty charged on Hong Kong stock transfers from the previous rate of 0.13% payable by each of the buyer and the seller to 0.1% of the transaction value.
• The Stamp Duty (Amendment) (Residential Properties) Bill 2023 came into effect upon gazetting on 27 October 2023. The amendments thus sought to address the demand-side management of residential properties which includes (i) shortening the applicable period of the special stamp duty from 36 months to 24 months; and (ii) reducing the respective rates of the
• The Insurance (Amendment) Ordinance 2023 was gazetted on 14 July 2023, effecting amendments to the Insurance Ordinance for Hong Kong SAR in order to create a legal environment that allows for the introduction of a Risk-based Capital regime for authorised insurers, as well as making miscellaneous and related amendments to other ordinances, such as
• The Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023 gazetted on 19 May 2023 which brings 0% concessionary profits tax rate on the assessable profits from qualifying transactions and incidental transactions (5% threshold of which are subjected to incidental transaction tax) with elig Retroactive to any financial year commencing on or after 1 April 2022, the tax concession applies to the respective assessments.
• 28 April 2023 saw the gazette of The Inland Revenue (Amendment) (Child Allowance and Tax Concessions) Ordinance 2023, which serves to implement a profits tax reduction of 100% for the year of assessment 2022/23, with cap of HKD 6,000.

The taxation framework of Hong Kong SAR is primarily territorial. The profits tax is payable by every person (which is defined to include corporation, partnership and sole proprietorship) within the HKSAR who are carrying on a trade, profession or business in HKSAR on his/her profits arising in or derived from HKSAR from that trade, profession, or business. 

In general, the tax residency of an individual is regarded as immaterial and neither residents nor non-residents have any taxable profits except for the specific tax treaty regime context. Any Non-residents who are carrying on trade, profession or business in the territory of Hong Kong SAR, is liable for profits arising from or accrued in/from Hong Kong SAR, except the non-residents from a jurisdiction with which Hong Kong SAR has a tax treaty, and are protected by the treaty.

Any amount that are of a capital nature are not taxed. Income of local companies which’s chargeable to tax are exemptions, whereas those of overseas companies are usually offshore in nature and not subject to tax in Hong Kong SAR. Yet, unlike under the old FSIE regulations, it will be treated as taxable income if offshore profits are obtained through the sale of the assets and offshore dividends. Public and private companies receive the same tax treatments.

The income that would otherwise not be subject to Hong Kong profits tax is deemed to arise from or originate in or obtained from Hong Kong SAR in connection with the trade, profession, or business carried on in Hong Kong SAR, and therefore is taxable in Hong Kong SAR as income from a trade, profession, or business. This covers royalties paid by a non-resident to a person in Hong Kong SAR or for the use of the IP outside Hong Kong SAR and can be claimed for deduction by a person in Hong Kong SAR for the purpose of profits tax.

Effective from 1 January 2023, under the refined FSIE regime, four types of offshore income, namely (i) interest, (ii) dividends, (iii) disposal gains from the sale of equity interests (equity interest disposal gains), and (iv) IP income (collectively, ‘specified foreign-sourced income’), are deemed to be sourced from Hong Kong SAR and chargeable to profits tax if the income is received in Hong Kong SAR by a multinational enterprise (MNE) entity carrying on a trade, profession, or business in Hong Kong SAR (irrespective of its revenue or asset size) and the recipient entity fails to meet a relevant exception from the deeming provision. 

The effect of the expansion of ‘specified foreign-sourced income’ to encompass disposal gains on other types of assets (aside from equity interests) will come into force on 1 January 2024. The exceptions from the deeming provision are:The exceptions from the deeming provision are:

• For interest and non-IP disposal gains: Substance requirement economic.
• For dividends and equity interest disposal gains: Economic substance requirement or participation requirement.
• For IP income and IP disposal gains: Premium discount (nexus requirement).
• For disposal gains (both IP disposal gains and non-IP disposal gains): The relief has been effective from January 1, 2024, and it aims to defer tax that may be chargeable on disposal gain on any type of assets that meet the transfer between associated entities.

Starting from the year 2018/19, Hong Kong SAR has moved to a two-layer profits tax rates regime. The following table shows the applicable tax rates for corporations and unincorporated businesses:

* The anti-avoidance strategy is to ensure that a ‘group of connected entities’ will nominate only one member of this group that will benefit from the two-tiered tax rates for a specific year of assessment.

For those industries which have special rules to determine the tax liabilities, examples are shipping, air services and financial services. A special tax framework for Islamic bonds (i.e. sukuk) has also been developed to make sure that sukuk and their conventional counterparts are subjected to the same tax treatments.

Profits from certain debt instruments (QDIs) issued before 1 Apr 2018 may be either tax exempt or taxed at concessionary rates (that is, effective rates of 50% of regular profits tax) depending on the issue date and the maturity period of the QDIs. Incomes arising from the qdis issued on or after 1 April 2018 are tax exempted,regardless of maturity period,provided that the conditions are met. It is worth noting that this concessionary tax rate is not necessarily applicable to the income generated from qualified domestic income (QDI) by an individual if this person is a connected person of the issuer / namely, the person acquiring the QDI.

In this regard, public funds that are regulated by the Securities and Futures Commission of the Hong Kong SAR and similar funds that are subject to an acceptable supervisory authority and regulations, are exempted from Hong Kong profits tax. Effective from 1 April 2019, both onshore and offshore privately offeered funds are exempted from Hong Kong profits tax on profits derived from the specified transactions that are carried out by the ‘Specified Persons’ (i.e., SFC licensed fund managers) or the funds are qualified as ‘Qualified Investment Funds’ defined under the law. The specific anti-avoidance provisions in the IRO are such that it is deemed that certain residents are subject to the profits tax on their share of the non-resident person’s tax-exempt earnings.

Income generated from the reinsurance of onshore risks, onshore and offshore captive insurance business is taxed at the concessionary rate of 8.25% (which is half the usual profits tax rate). General reinsurance business profits of direct insurers, general insurance business profits (certain types) of direct insurers and certain insurance brokerage business profits of licensed insurance brokers, are also exempted from profits tax at a concessionary rate of 8.25% (or 50% of the normal rate) effective from 19 March 2021.

Profits of a qualify corporate treasury centre which satisfy certain conditions are subject to profits tax at a concessionary tax rate of 8,25% (which is half of the regular profits tax rate)

Profits earned from qualifying aircraft leasing and qualifying aircraft leasing management activities conducted in Hong Kong SAR are subject to profits tax concessionary tax rate of 8.25% under specified conditions. Moreover, the taxable net lease payments consists of the 20% of the gross lease payments of an aircraft lessor minus the deductible expenses with the exception of the tax depreciation allowance.

Effective from 1 April 2019, qualifying profits from the qualifying ship leasing activities carried out in Hong Kong SAR are subject to profitable tax at zero percent and qualifying profits from the qualifying ship leasing management activities carried out in Hong Kong SAR are subject to profitable tax at zero percent (for the associated corporations) or 8.25% (for non-associated corporations), subject to certain

Effective 1 April 2022, qualifying profits generated from qualifying shipping activities, namely ship agency, ship management, or ship broking activities conducted in HKSAR will be exempt from tax or a concessionary profits tax rate of 0% or 8.25% provided stipulated conditions are met.

Qualifying participant’s carried interest, or the carried interest received by a qualifying recipient on or after 1 April 2020, on investment management services provided in Hong Kong SAR for a certified investment fund may be eligible for a concessionary profits tax rate of 0%, if the specified conditions are met.

An FIHV that is eligible and is managed by an ESF Office in the HKSAR, for the profits taxable on or after 1 April 2022, from the qualifying transactions and incidental transactions (being within 5% threshold), will be subject to profits tax at a concessionary tax rate of 0% under the conditions stipulated.

The concessionary tax treatments under the following special tax regimes will be available only if the taxpayer has substantial activities in Hong Kong SAR in terms of the number of qualified employees and amount of operating expenditure, which must be adequate in the opinion of the Commissioner of Inland Revenue (CIR) and, in any event, not lower than the minimum thresholds as set out further below:

• Corporate treasury centres.
• Reinsurance business.
• Captive insurance business.
• Specific insurance services such as general insurance business.
• Specific lines of insurance agentage.
• Lessors of aircraft and aircraft leasing managers.
• Lessor-shippers and ship leasing officers.
• Shipping operations.
• Certain shipping-related activities.
• Brought in provisions for investment management services at qualified levels.
• FIHVs.

For the concessionary tax regimes on ship leasing and certain shipping-related activities, the minimum threshold requirements during the basis period for a year of assessment are as follows:

For the insurance business concessionary tax regimes, the minimum threshold requirements during the basis period for a year of assessment are as follows:

For the carried interest tax concession for the provision of qualified investment management services, the minimum threshold requirements during the basis period for a year of assessment within the applicable period (i.e. from the day on which the qualifying recipients began to perform investment management services to the fund to the day on which the carried interest was received by, or accrued to, the qualifying recipients) are as follows:

For the FIHV concessionary tax regime, the minimum threshold requirements during the basis period for a year of assessment are as follows:

Thus far the CIR has not given out the threshold requirements for other concessionary tax regimes by a gazette notice.

How FastLane Group can Help?

FastLane Group offers tax compliance services that ensure corporations in Hong Kong comply fully and correctly. We provide a professional service covering corporate profit tax, personal income tax, and cross-border tax matters. We provide expert consultants, preparation of returns with care, and audit representation, giving you the confidence you need for all your business tax-related needs.