Hong Kong has long been known as a popular tax haven jurisdiction with a highly developed legal, regulatory, and financial framework, making Hong Kong company tax filing and compliance efficient for global businesses. For these reasons, many companies choose Hong Kong as their primary offshore jurisdiction to setup a company, where the profits of the company may be considered tax-free.
Overview of Profits Tax
The standard Hong Kong profits tax rate for corporations in Hong Kong is 16.5% on assessable profits. A lower rate of 8.25% applies to the first HKD 2 million of assessable profits for qualifying corporations. Income is considered soured in Hong Kong if it arises from activities carried out in Hong Kong including sales of goods that are traded in Hong Kong and services rendered there. The accounting year for each corporation may differ, but the fiscal year runs from April to March.
When do we need to file profit tax in HK?
In Hong Kong, a limited company is subject to profits tax only on income that is sourced in Hong Kong. The IRD will generally issue a “Profits Tax Return” to all limited companies in Hong Kong on each year of April. When company receives the “Profits Tax Return”, it must complete it within one month of the date of issue of the return and return it to the Inland Revenue Department for processing of tax assessment. However, the department also offers the option to apply for an extension under specific circumstances.
From April to September of each year, accounting firms experience their peak period. In this case, it is crucial for company operators in Hong Kong to arrange their tax filings and audits early to avoid the pitfalls of a tight schedule due to high demand.
How to file the profit tax in HK?
The Hong Kong company tax filing process mainly involves three procedures: accounting, auditing, and tax assessment, all essential for accurate Hong Kong tax filing. As part of Hong Kong tax filing, companies must prepare key financial statements such as trial balances, profit and loss statements, and balance sheets. This preparation requires organizing all original documents and compiling detailed accounting records like vouchers, subsidiary ledgers, and general ledgers. Essential documents used in this process include the company bank statements, payment and receipt vouchers, commercial invoices, purchase orders, and expense documents.
HK auditing is conducted by licensed accountants to ensure the financial statements accurately. The audit is essential for complying with Hong Kong’s accounting and tax regulations. The audit reports must be approved by the company’s shareholders or directors, and then submitted to the tax authorities.
The IRD assesses these documents within three months after the tax forms, accounting reports, and auditor’s reports are submitted,. If a company is found to be unprofitable or at a loss, tax bureau will issue a notification that no tax is due, and the loss can be carried forward to offset against future profits.
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