Profits tax is unavoidable for all companies operating in Hong Kong, no matter whether the company makes or loses money. As it is a tax every company must file, here is a brief introduction of some tips on profits tax.
Who needs to file profits tax returns?
All those who operate any industry, profession or business in Hong Kong are required to file. Generally speaking, the Inland Revenue Department will issue different types of profits tax returns to different people:
- Profits Tax Return – Corporations (BIR51);
- Filing of Tax Return – Individuals (BIR60);
- Profits Tax Return – Persons Other Than Corporations (BIR52);
- Profits Tax Return – In Respect Of Non-Resident Persons (BIR54)
When will I receive profits tax returns?
In general, the IRD will issue profits tax returns for continuously operating businesses on the first working day of April.
Newly established companies and newly registered businesses usually receive tax returns 18 months after establishment.
In addition, if a business is not yet in operation or has closed down, or if the business has not earned assessable profits (usually having received IRC 1812 issued by the IRD in the previous year), no tax returns will be sent out.
When should I file tax returns?
The IRD will determine the deadline for tax returns according to the financial year period of each company. Generally, the deadlines for submitting profits tax returns are as follows:
|End of Year||Type||Deadline for Profits Tax Returns||Extension of Deadline|
|1 April to 30 November||N||End of May (29-31 May)||None|
|1 December to 31 December||D||Mid-August (14-16 August)||None|
|1 January to 31 March||M||Mid-November (14-16 November)||Only applicable for companies with losses in a financial year End of January of the following year (29-31 January)|
If you choose to file online tax returns (except for companies with losses in a financial year, or companies with end of year within January 1 to March 31), there will generally be a two-week extension of deadlines.
Newly established companies and newly registered companies will have to submit tax returns within 3 months of receiving the first tax return form.
Year of Assessment and Basis Period of Assessment
The tax year in Hong Kong is from 1 April to 31 March of the following year, but because companies can choose different dates for financial year periods, the basis period of assessment will be different from the year of assessment. Periods within the year 2021 is used as an example below to help you understand the year of assessment and basis period of assessment more easily:
|Financial year/basis period of assessment||Type||Year of Assessment|
|1 February 2020 to 31 January 2021||N||2020/21|
|1 June 2020 to 31 May 2021||N||2021/22|
|1 January 2021 to 31 December 2021||D||2021/22|
|1 April 2021 to 31 March 2022||M||2021/22|
|1 June 2021 to 31 May 2022||N||2022/23|
To put it simply, as long as the company’s end of year is later than 31 March, the next tax year will be regarded as the company’s year of assessment. Thus, when filing taxes and calculating tax concessions, remember to pay attention to your company’s year of assessment to avoid miscalculating taxes.
What to Prepare When Filing Tax Returns
In addition to preparing and submitting the completed tax return form, you will also need to prepare the following documents for submission to the IRD:
- Financial statements (including balance sheets and income statements) signed and approved by the company’s board of directors;
- Audit report prepared by an auditor;
- Profits tax calculation table; and
- Other supplementary documents and information (if necessary).
If the company is an ordinary small and medium enterprise, as long as the company’s total income during the basis period of assessment does not exceed HKD2,000,000, the IRD will treat the company as a “Small Corporation/Small Business”. The above documents will therefore not be required for submission unless requested by the IRD.
Profits Tax Rate
Hong Kong’s profits tax rate is only divided into two types: corporations and unincorporated businesses. Both of them have been based on the two-tier tax rate since the 2018/19 year of assessment. The tax rates are as follows:
|Taxable Return||Corporations||Unincorporated Businesses|
Submission and Penalties
When all the documents are prepared, they can be submitted to the tax bureau. If the company is a Small Corporation/Small Business, you can choose to file the tax return online. If your company’s tax return is not filed on time, the tax bureau may:
- Issue an estimated tax assessment;
- Impose a fine of HKD10,000; or
- Impose a fine equivalent to 3 times the tax undercharged.
If your company’s tax return has not been filed, the court can order the tax return to be filed within a specified time.
Profits tax is unavoidable, so the more you understand, the less trouble you will run into. That is why we will continue sharing more information on profits tax in the future.
Pacers is a company that provides multifaceted and professional consulting services. We are eager to grow with our clients, so if you encounter any issues on taxation, you’re welcome to contact us through our website or email at firstname.lastname@example.org.