Filing of Profit tax return

An Hongkong company is required to file PTR every year.

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Filing of Profit tax return

Accounting and tax collections are important in every country, and this is often no exception in Hong Kong. Each Hong Kong company will get to file the Profit tax return (PTR) for every respective year when conducting business, and this is often issued by the Hong Kong Inland Revenue Department (IRD).

The company would wish to arrange the company accounts and prepare them to be submitted to a licensed Public Accountant to be audited and filed to the government. After the accounts are prepared and audited, the audit report and tax computation are going to be submitted with the PTR to the Inland Revenue Department.

The tax year in Hong Kong follows the financial year starting in April, and not the calendar year from January to December. As the financial year of Hong Kong ends on March 31st, the PTRs also follow this same model. Therefore 2017 (2016/17) PTR are going to be for the amount from April 1st, 2016 until March 31st, 2017.

For companies in Hong Kong, you'll select which fiscal year-end is best for you, and this will then fall into a particular financial year-end consistent with that of Hong Kong. Therefore If your company’s year-end is on December 31st, 2016, then these financial figures are going to be filled within the 2017 PTR for the company. Any profits from the period of time from January 2017 to March 2017 are going to be counted for the 2018 PTR, as albeit it occurs within the financial year of the Hong Kong government, it falls within a subsequent year of your company’s financial year (ie. December 31st, 2017).

Normally a corporation will have just one month to file and complete this PTR form, before the IRD issues any penalties for the late filing of this form. Within the case of the primary PTR for the company, the company can extend this filing for up to three months from the issuance date. This PTR filing is often extended to year-end dates but must be applied for every year for a filing extension.

The dates for the extension of filing are as below:

Financial Year ended as at 31st of March

  • Tax Filing Date – 15th of November
  • Documents Ready for Audit – Not later than 1st of September
 

Financial Year-end as at 31st of December

  • Tax Filing Date – 15th of August
  • Documents Ready for Audit – Not later than 1st of June
 

Financial Year-end as at Other dates than a) or b) e.g. 30th of June

  • Tax Filing Date – 30th April
  • Documents Ready for Audit – Not later than mid of February

The first PTR for the company will usually be issued around 18 months after the incorporation date of the company. As an example, if a corporation was incorporated on 01 January 2017, it'll receive it’s first PTR from the government around June 2018.

During this point, if the company has commenced business either in Hong Kong or abroad, it'll have to prepare the accounts for the company. albeit the company has conducted its business outside of Hong Kong, it might still get to report it’s accounts and any profits earned to the IRD within the annual reports, so as to say the profits tax exemption.

It will get to complete the PTR if the company had a profit or loss for the amount. the company will then have to submit the finished PTR alongside the supporting documents within three months from the date of issuance. a licensed public accountant can assist you with preparing the audited financial statements and completing the PTR for the company.

The effective operation of the straightforward legal system with low tax rates in Hong Kong requires a high degree of compliance and understanding by taxpayers and businesses. It's also the responsibility of each and every taxpayer under the law to file an accurate and timely income tax return to the Hong Kong Inland Revenue Department (IRD).

It’s often misunderstood that a “NIL” PTR return is filed for businesses that haven't administered business activities in Hong Kong. This notion is wrong, and it could lead to further tax implications, heavy tax penalties and possible court summons for businesses down the road. Companies should file a “NIL” PTR that hasn’t commenced any business transactions throughout the amount, whereas the commencement of business is when the company starts its business activities.

Companies can enjoy Hong Kong’s territorial legal system, whereas tax is merely levied on profits derived in Hong Kong and 0 taxable income for profits outside of Hong Kong, but they first must apply for the profits tax exemption and be granted offshore company status. Offshore status isn't automatically granted, and corporations should never assume that this may be granted when filing a “Nil” PTR.

The Inland Revenue Ordinance (IRD) states that punitive actions are often taken against an individual under section 80(2) of Part XIV, who without an inexpensive excuse:

  • makes an incorrect return;
  • makes an incorrect statement;
  • gives any incorrect information;
  • fails to furnish a return in time; or
  • fails to tell chargeability to tax.

The offense is subject to a fine of $10,000 and triple the quantity of the undercharged tax.

We offer our professional advice on these filings, as we've experienced in properly handling “Nil” PTR returns and offshore status for profits tax exemption cases. within the case your company has improperly filed a “Nil” PTR when it's conducted business activities outside of Hong Kong, we can assist in getting your company back on target with the right profit tax return filings.

Companies that haven't commenced any business transactions throughout the amount, a “NIL” Profits tax return could also be filed. The commencement of business is when the company starts its business activities. The precise day of business commencement isn't easy to work out, generally, it might be when a business undergoes activities in reference to the business.

If the company has not commenced the business of any kind, then it's going to file a “NIL” PTR as declaring no commercial activity yet for the company. Filing the PTR form as “NIL” in effect states that the company has not conducted business, neither in Hong Kong nor anywhere else for the company.

In the case, the company has commenced business and conducted it’s activities solely outside of Hong Kong, it's going to apply for the Offshore Profit Tax exemption. This is often different from the “NIL” PTR because the company states it's conducted business with the financial figures filed within the PTR, however, it applies for these to be exempt from profits tax under the Hong Kong regulations. the appliance for the profits tax exemption is formed at an equivalent time with the submission of the Audit Report and PTR.

This is a crucial step in recognizing the company ’s business activities as exempt from Hong Kong profits tax for the company.

In case a Hong Kong business is running entirely from outside the country, it's qualified for the Profit Tax Exemption that the authorities of the Hong Kong tax office grants.

This means that there's a 0% rate of tax that might be applied to the income of the company that's coming in from the surface of the country, permitting the company to enjoy a tax-free profit.

You can enjoy this as long as the Profit Tax Exemption claim has been approved. These are the items you'd got to do for it:

  • Submit the PTR & audited financial statements.
  • File an offshore exemption claim with the audited financial statements.
  • The IRD will issue an offshore claim inquiry letter for the firm as proof.
  • The company’s directors and/or sales representatives need to provide their passports to the IRD alongside the sales representatives, company invoices, contracts, arrangements, shipping documents, etc.
  • After the verification has been done, you'd be issued the offshore tax exemption by the IRD.

 

Hong Kong institutes the territorial system for company tax arising in or derived from Hong Kong. What this suggests is that company tax will only be applied to profits from trade, business or profession within the Hong Kong territory. Profits from business activities that occur outside of Hong Kong won't be subject to company taxation, regardless of the funds remitted through Hong Kong or other territories. Therefore, a corporation with funds received to a Hong Kong bank account but conducting trade outside of Hong Kong might not be subject to company profits tax. On the other hand, a corporation with funds received to an offshore bank account but with trade within Hong Kong could also be subject to company profits tax.

This territorial system also doesn't depend upon if you're a resident or non-resident. you'll be a resident with non-taxable profits deriving outside of Hong Kong or a non-resident with taxable profits in Hong Kong. This technique is especially determined if the profits for the company were arising in or from Hong Kong.

The questions of whether a corporation conducts business in Hong Kong, and whether profits are derived from Hong Kong are a matter of fact. Some guidance on the principles applied is often found in cases that are considered by the Hong Kong courts and other law cases.

Here are another general information for the profits tax return:

  • Your company will have to file the Profits income tax return once per annum , as issued by the IRD.
  • The first PTR is going to be issued around 18 months after incorporation and can cover the primary 18 months of the company.
  • Each subsequent PTR for the company will cover 12 months and will be filed annually.
  • The PTR should be accompanied by supporting documents, like a licensed audit report and tax computation.

 

The first financial period of the business will normally begin from the incorporation date until up to 18 months from incorporation. the company should also select a fiscal year-end. As an example, if the company selects a year endways March 31st, every subsequent year after the primary day of the New Year is going to be on April 1st and ending on the proceeding March 31st. All financial statements will need to be prepared during this fiscal year time.

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