After introducing the necessary information that you need to know about the Profits Tax return in “How much do you know about Profits tax,” many of you have expressed interest in learning more about the specific items on the return. Therefore, Pacers will provide a more detailed explanation of the Profits Tax return for everyone.
Part 1 – Statement of Assessable Profits or Adjusted Loss
In part 1, taxpayers are required to provide information on the assessable profits or adjusted loss of the company, which is not the same as the profit and loss reported on the company’s financial statements. The assessable profits or adjusted loss should be adjusted according to the tax ordinance.
1.1 Assessable Profits (before loss brought forward): The profit of the company in the current year of assessment, after adjustments according to the tax ordinance.
1.2 Adjusted loss (before loss brought forward): The loss of the company in the current year of assessment, after adjustments according to the tax ordinance.
1.3 Loss brought forward from prior year:
Adjusted losses of the company that have not been utilized in the calculation of assessable profits for prior years of assessment.
Part 2 – Tax Liability or Repayment
The information provided in this section pertains to the taxpayer’s actual amount of tax payable or repayable. In calculating the amount, not only the tax and provisional tax payable for the current year of assessment are taken into account, but also any outstanding or paid tax from previous years, including the provisional tax.
2.1 Tax payable: the amount of tax a corporation must pay after calculation.
2.2 Tax repayable: The amount of tax a corporation is entitled to receive after calculation.
Part 3 – Gross Income, Specified Transactions and Matters
The questions asked in this section are all related for “Small Corporations” and the following questions are for the convenience of the IRD to classify and request supplementary information from corporations in the future.
3.1 Did your gross income during the year of assessment exceed $2,000,000?
This refers to all income (e.g., operating income, interest income, or gain from disposal) as reported in the financial statements.
3.2 During the basis period, did you pay or accrue to a non-resident person any sum for the use/assignment of intellectual property specified in section 15(1)(a), (b), (ba), or (bb) of the Inland Revenue Ordinance?
Did the company purchase intellectual property rights (such as trademark rights, patent rights, copyright, design rights, plant variety rights, and rights of layout-designs of integrated circuits)
3.3 Did you have any deemed assessable profits under sections 20AE, 20AF, 20AX, and/or 20AY of the Inland Revenue Ordinance for this year of assessment?
Did the company fall under these categories and generate profits from Hong Kong?
(a) The assessable profits of non-residents are deemed to be the assessable profits of residents.
(b) The assessable profits of specified instruments held by non-residents are deemed to be the assessable profits of residents.
(c) The assessable profits of funds are deemed to be the assessable profits of residents.
(d) The assessable profits of specified entities held by funds are deemed to be the assessable profits of residents.
3.4 Does the amount of the Assessable Profits/Adjusted Loss entered in Part 1 include any profits/loss subject to tax at concessionary tax rate for this year of assessment?
Has the taxpayer generated income from the following items and is enjoying a concessionary tax rate (half of the normal tax rate)?
(a) short/medium-term debt instruments (issued before 1 April 2018)
(b) carrying on a business as a/an:
i. qualifying corporate treasury center;
ii. qualifying aircraft lessor or qualifying aircraft leasing manager;
iii. professional reinsurer or authorized captive insurer;
iv. specified insurer or licensed insurance broker company; or
v. qualifying ship lessor or qualifying ship leasing manager
3.5 Do you claim tax relief for this year of assessment pursuant to an arrangement for avoidance of double taxation specified under section 49(1) or 49(1A) of the Inland Revenue Ordinance?
Has the taxpayer paid taxes of similar nature in the region/country where they are trade partners with Hong Kong and would like to claim the tax exemption accordingly?
3.6 Have you obtained an advance ruling relating to this year of assessment? If yes, submit the information as required in the Notes.
Has the taxpayer sought advice from the IRD regarding any tax-related issues during the year of assessment?
3.7 Were you a permanent establishment in Hong Kong of a non-Hong Kong resident person for this year of assessment?
Did the non-resident individual/corporation have a fixed place of business in Hong Kong and conduct all or part of its business through that place?
The profits tax returns contain a lot of information and professional terms. To help you have a better understanding, this article will be divided into several sections. If you want to know the remaining parts of the profits tax returns, please continue to pay attention to Pacers’ blog posts.
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