Hong Kong is very desired for businesses for its simple taxation structure and lowers taxation fees. These simplified tax regulations and simple taxation establish Hong Kong as a booming business and investment center not only in Asia but around the world.
In addition to the present, businesses can enjoy tax incentives and allowances to further reduce their tax liabilities for his or her business activities while in Hong Kong and abroad. This translates into fewer tax burdens on your company and greater economic freedom when doing business. Also, Hong Kong companies can claim tax exemption status if they conduct their business outside of Hong Kong and if none of their business activities arise from or are derived in Hong Kong.
This is essential for startups and corporations when conducting business internationally. The foremost defining aspects of Hong Kong taxation are its flat corporate tax rate and the territorial corporate legal system.
The corporate profits tax in Hong Kong is levied by the Inland Revenue Department, or IRD, for short. This administration deals with all the taxation issues in Hong Kong both for businesses also as individual tax. Companies would wish to submit the Profits income tax return (PTR) and Audited Accounts annually to the present department, which can be reviewed and any taxes assessed for the corporation.
The scope of Hong Kong taxation establishes the territorial concept for Hong Kong companies, which outlines that taxation only from profits arising in or derived from Hong Kong. The taxation rules in Hong Kong apply to all or any people and entities which have profits arising in or derived from Hong Kong, regardless of if they're a resident or non-resident of Hong Kong. Further, this is often regardless if funds are remitted into/out of Hong Kong or other territories, it'll only apply to the profits in Hong Kong.
This applies to the business activities which are due to chargeable profits occurring within the Hong Kong territory, as defined by the Hong Kong taxation regulations. This definition of chargeable profits arising in Hong Kong is essential of fact, and a few guidelines are often found in cases from the Hong Kong Government.
There is a flat corporate rate of 16.5% of assessable profits in Hong Kong. This rate is among rock bottom within the world for businesses, which is the reason why Hong Kong is a beautiful jurisdiction for incorporating businesses. After chargeable profits are made, possible taxation could also be further reduced by various tax deductions and allowances for businesses, as began by the Inland Revenue Department(IRD).
Currently, the Hong Kong government is under legislation to further reduce this corporate rate for little businesses within the future, outlining a tax decision to reduce this to below 10% within the coming years.
Hong Kong institutes the territorial system for corporate tax arising in or derived from Hong Kong. What this suggests is that corporate 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 corporate taxation, regardless of the funds are remitted through Hong Kong or other territories. 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.
The questions of whether a corporation conducts business in Hong Kong, and whether profits are derived from Hong Kong are a matter of fact. Documentary evidence and supporting documents will have to be kept showing where the business activities and profits occurred for the corporation. Some guidance on the principles applied is often found in cases that are considered by the Hong Kong courts and other law cases.
The basis period is assessed with regard to the Year of Assessment in Hong Kong. The year of assessment in Hong Kong ends on March 31st. Thus the financial year is from April 1st until March 31st. Therefore, the year of assessments for 2016/17 would be for the financial year ended 31 March 2017.
Hong Kong companies can select any year fiscal year-end date for the corporation. Normally most companies will choose their fiscal year-end date on December 31st or March 31st, as this fiscal year ends may enjoy tax filing extensions from the IRD. However, Hong Kong companies can choose any fiscal year-end they desire.
Normally, the Inland Revenue Department (IRD) will issue the Profits income tax return (PTR) for companies in April of every year. The rationale for this is often the financial year in Hong Kong is from April 1st to March 31st of the preceding year. a corporation would have one month to file the accounts after the PTR is issued from the IRD. the corporate can elect to increase their PTR filings up to 9 months after their fiscal year-end, normally after their first PTR filing once their fiscal year-end is about up.
For new companies, the HK Inland Revenue Department issues the primary Profit income tax return to a corporation 18 months after incorporation. the finished PTR must then be submitted within three months from the date of its issuance. If the PTR is submitted late for the corporation, the IRD may issue a late penalty fee or in stricter penalties for non-compliance with PTR filings.
This PTR will establish your company’s first financial year end-date. for instance, if your first company accounts are from October 31st, 2015(date of incorporation) up until 31 March 2017, then the fiscal year-end for the corporation are going to be March 31st for every preceding year.
After this, all subsequent PTRs must be completed and filed for the corporation, no later than one month from the issuance date of every year’s PTR.
The company must file the annual set of returns with the subsequent documents:
A tax computation showing how the quantity of assessable profits(or adjusted loss) has been received
These documents are normally prepared by a licensed Public Accountant, who reviews the corporate accounts and generates an audit report and tax computation for the corporation. they might act as the tax representative, and be liable for completing the PTR and tax calculations for the corporation on their assessable profits.
The provisional profits tax in Hong Kong is that the assessable profits for a subsequent year of assessment for a corporation. This figure is merely received after the present year’s tax payable is calculated, and paid beforehand alongside the present year’s taxes, essentially doubling the quantity of taxes owed within the current year. These income tax figures are paid in two installments to the IRD, the primary being 75% of the taxes payable and therefore the second being 25%. This prepaid provisional tax would then be used next year to offset the tax payables next year for the corporation, which might then make a prepayment of the year after next’s taxes payable for the corporation.
For example, if a company’s assessable profits are HKD 200,000 for the year 2017, with no deductions or allowances for simplicity, they might have to pay 16.5% or HKD 33,000 in taxes for the year 2017. After this is often calculated and reviewed, the corporation would also get to pay the provisional tax for the year 2018 as a sort of advanced payment, of HKD 33,000 also. Therefore the corporation would wish to pay HKD 66,000 in 2017, HKD 33,000 as taxes and HKD 33,000 as taxes beforehand for 2018. This HKD 66,000 would wish to be paid in two installments, the primary being HKD 49,500 (75% of the total payment) and therefore the second being HKD 16,500 (25% of the total payment).
If a corporation features a net loss for the year, it will carry over this loss to be offset against future assessable profits, and taxes payable within the future. This, however, doesn't apply to an equivalent corporate group, whereas companies cannot transfer their losses between one another within the same group. Also, losses can't be applied backward for assessable profits made in previous years.
A company’s net during the amount may differ from its assessable profits to be taxed, counting on the certain deductions and allowances ready to be granted to a corporation. This is able to depend upon the business nature, and therefore the adjustments made to it’s net when arriving at the assessable profits. within the cases where the corporation mainly conducts its business outside of Hong Kong, internet income might not end in any assessable profits for the corporation, if the companies meet the wants and successfully applies for the profits tax exemption.
We can provide you assistance in any accounting or taxation matters you'll have with regard to your company, or future business transactions in Hong Kong. We offer professional bookkeeping and taxation services, and consultation for your business needs with regard to the profits tax of Hong Kong companies.