Filing a profit tax return in Hong Kong is essential for businesses to ensure compliance and manage their tax obligations effectively. In this guide, we’ll break down everything you need to know about filling profits tax returns and key updates for 2023/24. Let’s dive in and simplify the process of profit tax filing in Hong Kong!
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Content Outline
Key Summary for Filing Profit Tax Returns
Timely Filing Is Crucial
Filing profit tax returns on time ensures compliance and avoids penalties ranging from HKD 1,200 to HKD 10,000.
Understanding Tax Rates
Corporations are taxed at 16.5%, while individuals pay a 15% rate on profits derived from Hong Kong sources.
Impact of Deductions and Reliefs
Utilizing deductions, group loss relief, and double taxation agreements can significantly reduce tax liability.
Capital Gains Are Exempt
Hong Kong’s profit tax system does not tax capital gains, offering businesses an advantage when selling assets.
Compliance with Updated Requirements
Staying informed about new tax relief measures, incentives, and special provisions ensures accurate filing and maximizes potential benefits.
Understanding Profit Tax Returns In Hong Kong
Hong Kong has a territorial tax system which means businesses only pay tax on profits derived within Hong Kong. This profit tax applies to corporations, sole proprietors, and partnerships.
Who needs to file?
Any business operating in Hong Kong, whether incorporated locally or overseas, must file a profit tax return. The Inland Revenue Department (IRD) issues these returns to active businesses at the end of each tax year. These are the profit tax rate in Hong Kong:
- Corporations: The current corporate profit tax rate in Hong Kong is 16.5% on assessable profits.
- Sole Proprietorships & Partnerships: Individuals operating as sole proprietors or in partnerships are taxed at a 15% rate on assessable profits.
Two-Tier Tax System: A lower tax rate of 8.25% applies to the first HKD 2 million of profits for corporations and 7.5% for unincorporated businesses.
Filing deadlines and penalties
It’s crucial to file on time to avoid penalties. The deadline for submitting a profit tax return is one month after the IRD issues the return.
Filing Deadlines
- 1st Return: Within 3 months of incorporation.
- Annual Return: Every subsequent year, companies must file within 1 month from the issue of the tax return notice.
Penalties
- Penalties: Fine range from HKD 1,200 to HKD 10,000 for late submission, plus additional interest.
- Late Penalties: Penalties for late filing range from HKD 1,200 to HKD 10,000 plus a percentage-based fine on the unpaid tax.
- Prosecution for Serious Cases: For tax evasion cases or significant non-compliance, companies may face prosecution and larger fines.
- Interest on Unpaid Tax: Interest is also charged on any overdue tax.
Extensions: Extensions can be requested if businesses are unable to file on time, with penalties for late submissions.
Document Checklist: Essential documents for filing include audited financial statements, profit and loss accounts, balance sheets, and tax computation schedules.
Calculating Your Profit Tax Return
Calculating the profit tax return involves understanding assessable profits, allowable deductions, and other exemptions.
- Assessable Profits: These are calculated by subtracting allowable business expenses from the gross income.
- Allowable Deductions: Include staff salaries, rent, and business-related expenses.
- Capital Gains Exemption: Hong Kong does not impose tax on capital gains, which makes it favorable for businesses.
- Tax Adjustments: Non-deductible expenses (such as entertainment or personal expenses) should be excluded when calculating profit tax.
The profits tax rate for most companies is straightforward but precise calculations depend on the unique financial situation of the business.
Strategies For Managing Tax Liability
Businesses can legally reduce their profit tax liability through strategic deductions and exemptions.
- Maximize Deductions: Businesses can lower their taxable income by ensuring all allowable expenses are deducted.
- Group Loss Relief: Companies within the same group can offset profits and losses to reduce the overall tax liability.
- Use of Double Taxation Agreements: Hong Kong has signed treaties with several countries which allow businesses to avoid paying double taxes on profits.
Compliance And Record-keeping Best Practices
Maintaining compliance with Hong Kong’s tax laws requires diligent record-keeping and meeting deadlines.
1. Timely filing
Always file within the deadline. Businesses can face penalties and fines for missing these.
2. Accurate records
Keep detailed records of financial transactions, including receipts and contracts, to ensure deductions are valid.
3. Navigating tax deadlines
Set reminders for key tax dates, such as annual filing deadlines and the issuance of profit tax returns by the IRD.
Leveraging technology for profit tax return filing
Benefits of Electronic Filing
The IRD offers electronic filing services, which simplify the tax return process. Businesses can benefit from faster processing, error detection, and automated calculations.
Simplify tax filing
FastLane provides comprehensive tax services for businesses in preparing and submitting their profit tax returns. By leveraging technology, FastLane ensures a hassle-free filing experience.
2023/24 Profits Tax Filing Key Updates
Due Dates for Filing
For the 2023/24 tax year, returns are typically issued in April, with filing deadlines one month from the date of issue.
| Accounting Date | Extended Due Date | Electronic Filing Extended Due Date |
| For N Code Returns(Accounting Date between 1 April to 30 November) | 2 May 2024 | 2 June 2024* |
| For D Code Returns(Accounting Date between 1 to 31 December) | 15 August 2024 | 15 September 2024* |
| For M Code Returns(Accounting Date between 1 January to 31 March) | 15 November 2024 | 15 December 2024* |
| For M Code Returnsand Current Year Loss Cases | 31 January 2025* | 31 January 2025* |
Ref: https://www.gov.hk/en/residents/taxes/taxfiling/filing/types/profitstax.htm
Tax Relief Measures: The Hong Kong government recently introduced tax reliefs, such as rebates on the profit tax for the 2023/24 year to help businesses post-COVID.
New Tax Incentives: Initiatives have been launched to encourage innovation and startups, offering reduced tax rates for qualifying businesses.
Key Changes in 2023/24 Profits Tax Returns
| Items in the Returns | Key Changes |
| Item 3.2 in BIR 51 / Item 2.2 in BIR 52 | Taxpayers must now indicate if they have deemed assessable profits related to Family-Owned Investment Holding Vehicles (FIHVs) and/or Family-Owned Special Purpose Entities (FSPEs), as per the anti-round tripping provisions in the family office tax regime. |
| Item 7.11 in BIR 51 / Item 7.7 in BIR 52 | Taxpayers are required to declare if they are an FSPE held by an eligible FIHV. |
| Item 7.12 in BIR 51 | A new checkbox asks whether taxpayers are an eligible Single Family Office. If yes, they must provide details regarding the FIHVs managed and the specified net asset value. |
| Item 7.14 in BIR 51 / Item 7.9 in BIR 52 | A new checkbox allows taxpayers to claim the profits tax concession for Hong Kong-sourced eligible intellectual property (IP) income under the proposed patent box tax incentive. |
| Item 9.19 in BIR 51 / Item 9.7 in BIR 52 | Taxpayers electing for the tax concession for FIHVs must complete the new Supplementary Form S20, with a checkbox added for this purpose. |
| Item 10.4 in BIR 51 / BIR 52 | Taxpayers need to declare the amount of onshore equity disposal gains treated as non-taxable under the tax certainty enhancement scheme. This requires completing the new Form IR1481. |
| Item 10.10 in BIR 51 / BIR 52 | A new checkbox asks taxpayers to state the amount of profits earned by an FSPE chargeable at the 0% concessionary tax rate under the family office tax regime. |
Source: https://www.ird.gov.hk/eng/tax/taxrep_changes.htm
New/Revised Forms
The IRD introduced new forms for specific sectors and tax categories, designed to streamline the reporting process.
Modes of Filing
Businesses can choose between paper filing or electronic submission, with e-filing being the preferred method for speed and convenience.
Key Profits Tax Developments for 2023/24
Expanded Foreign-Sourced Income Exemption (FSIE) Regime
Hong Kong’s FSIE regime has been expanded, allowing more businesses to exempt profits earned abroad from Hong Kong taxation.
Tax Treatment of Onshore Equity Disposal Gains
Changes have been made to the taxation of onshore equity disposals, offering specific exemptions to businesses operating in financial sectors.
Enhanced Preferential Tax Regimes
Hong Kong has introduced sector-specific preferential tax regimes, particularly for innovation and technology businesses, offering lower tax rates for qualified activities.
Sector-Specific Tax Deductions and Treatments
Certain industries, such as financial services and technology, now benefit from specific tax deductions and incentives.
Hong Kong Profits Tax Case Relevant to Filing
The conditions for offshore income claims have been redefined which emphasize the importance of detailed documentation when applying for exemptions.
Latest Roadmap For Digitized Tax Reporting In Hong Kong
The IRD continues to innovate its tax reporting systems. The latest roadmap outlines a full transition to digitized reporting by 2025 to streamline the process for business.
Other Tax Reporting Requirements
Aside from profit tax returns, Hong Kong businesses must also file employer returns and property tax returns, depending on the scope of their operations.
Conclusion
Filing a profit tax return in Hong Kong can be easy with the right preparation and strategy. By leveraging expert help, staying compliant, and using digital filing tools, businesses can navigate their tax obligations efficiently. For professional assistance with your profit tax returns, contact FastLane today to streamline your filing process and ensure compliance with all Hong Kong tax laws. Talk to our team!