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Hong Kong Corporate Tax Return

Updated:2018-3-19 16:44:46    Source:TannetViews:568

Hong Kong corporate tax return is one of Tannet's basic business services. Hong Kong is world renowned for its simple and low tax regime, making it one of the most business-friendly jurisdictions in the world.Hong Kong’s corporate tax system, or profits tax as it commonly referred to, follows a territorial and flat-rate principle.

Hong Kong Corporate Tax System
Hong Kong follows a territorial system of taxation. In other words, tax will be levied only on profits arising in or derived from carrying on a trade, business or profession in Hong Kong. Profits tax is not applicable to profits whose source is outside Hong Kong. Hence, if you carry on a business in Hong Kong but your profits are derived from elsewhere, you are not liable to pay profits tax, irrespective of whether the profits have been remitted to Hong Kong. The territorial principle does not distinguish between residents and non-residents. You may be a resident in Hong Kong but if your profits are derived elsewhere, you are not liable to pay any tax on those profits. Likewise, if a non-resident derives profits from Hong Kong, he will be liable to pay profits tax in Hong Kong.

Single-Tier Corporate Tax System
Hong Kong follows a single-tier tax system because profits earned by companies are only taxed once, i.e. on the company that gained those profits. When that company declares dividends, the profits thus distributed are no longer taxable on the shareholders of the company.

Corporate Tax Filing Requirements and Deadlines
The Inland Revenue Department (IRD) of Hong Kong generally issues the corporate profits tax returns on the 1st of April every year. Normally, businesses should file the profits tax return within 1 month from the date of issue. In the case of newly registered businesses, the Inland Revenue Department will issue the profits tax return 18 months after the date of commencement of business or the date of incorporation.

Requirements on Hong Kong Corporate Tax Return
1. The specific profits tax return form as issued by the Inland Revenue Department;
2. A supplementary form as issued by the Inland Revenue Department for your tax data and financial data etc;
3. A certified copy of the Balance Sheet, Auditor’s Report and Profit & Loss Account pertaining to the basis period;
4. A tax computation showing how the amount of Assessable Profits (or Adjusted Loss) has been arrived at.

Small corporations (defined as those corporations whose total gross income does not exceed HKD 500,000 for the basis period) only need to file their respective profits tax return form and supplementary form. It is not mandatory to submit the other supporting documents mentioned above.

Provisional Profits Tax
Profits tax is payable on the assessable profits for a particular Year of Assessment. However, since it is possible to arrive at the assessable profits only at the end of the year concerned, an estimated tax based on the previous year’s figures will be issued. This estimated figure is the provisional profits tax, which is to be paid in two installments – the first installment is 75% of the liability and the remaining 25% is payable after three months.

Once the final assessment based on the actual assessable profits is made, credit is given for the provisional tax paid. If any excess payment has been made or if there are any outstanding payments to be made, they will be subtracted or added from the first installment of the provisional profits tax for the following year. Late or not filing a tax return is a serious offense leading to penalties and even prosecution.

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