The Scope
The Hong Kong government has clearly defined the scope of the charge as follow:
Taxable entities:
"Corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong."
Assessable profits:
"Profits for the basis period (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business."
A Territorial Basis of Taxation
Hong Kong adopts a territorial basis of taxation, which means only the profits that is arising in or derived from Hong Kong is taxable. The tax residence of the entities is in general irrelevant i.e. an entity incorporated in other jurisdiction is still liable to fulfill the Hong Kong tax obligation on its profits arising in or derived from Hong Kong, unless such entity is from a jurisdiction that the Hong Kong government has a tax treaty with.
Most questioned items
The most questioned items (by our users) on whether they are subject to tax or not in general:
| Taxable | Non-taxable |
Capital Gains | | * |
Dividends | | * |
Royalties Received | * | |
For details, please consult your tax advisor, or click below "Find a Qualified Advisor" to seek for advice.
Two-tiered Profits Tax Rates
Starting from the assessment year 2018/2019, an entity is taxable under the following two-tiered profits tax rates:
Entity Types | Profits | Two-tiered Tax Rates * | When Two-tiered Rates do not apply * |
Companies | First HKD 2 million | 8.25% | 16.5% |
| The remainder | 16.5% | 16.5% |
Unincorporated Businesses | First HKD 2 million | 7.5% | 15.0% |
| The remainder | 15.0% | 15.0% |
* However, for group companies, only one entity in the group can be nominated to adopt the two-tiered tax rates for a given year of assessment.
Profits Tax Return - Filing Due Date
The profits tax return ("PTR") filing due date is in general determined by the entity's financial year ended date:
Financial Year Ended Date | PTR Filing Due Date |
1 January to 31 March | 15 November of the same year |
1 April to 30 November | 2 May of the next year |
1 December to 31 December | 15 August of the next year |
Insights
Specific Industries and Services / Products
There are special rules or tax treatments an entity may apply when concluding its tax liabilities. Such rules or treatments are applicable to specific industries / services / products, e.g. shipping, air services, and financial products / services.
Cost
The professional service fee in general cost HKD900 - HKD2,500 for entities with low business activities and revenue. The fee goes up with the volume of business activities and amount of revenue, meanwhile, the structure of the entity (e.g. an entity within an international group structure) may also affect the service fee level.
Time Frame
The completion of PTR is quite straightforward, it normally takes 2 - 5 working days to finalize it. However, for entities that have commenced business in the year of assessment, a copy of audited financial statements ("AFS") should be presented to the tax advisor and Inland Revenue Department as a supporting document.
Before The Start of Financial Year
Entities with sufficient funds are always advised to undertake a comprehensive tax planning before the start of financial year, which could potentially save a considerable amount of tax payable in Hong Kong and other jurisdictions.