In Hong Kong, a profit tax return is a form businesses must file with the Inland Revenue Department (IRD) to report their income and expenses for profit tax purposes.
Starting a business venture in Hong Kong is one of the most attractive options for investors worldwide due to its impressive corporate tax system, the absence of capital gains tax, and a territorial system for Hong Kong salaries tax.
The corporate tax regime only taxes profits from a trade, business, or profession in Hong Kong.
In Hong Kong, instead of having one single income tax, they have three different ones:
- Salaries Tax: This tax is based on your net chargeable income, which is your assessable income minus personal deductions and allowances. The tax rates range from 2% to 17%, or a flat rate of 15% on assessable income minus personal deductions, whichever is lower.
- Profits Tax: For unincorporated businesses, there's a two-tiered system. The tax rate for the first HKD2 million of profits is reduced from 15% to 7.5%, while the remaining profits are taxed at the normal rate of 15%.
- Property Tax: This tax is a flat rate of 15% on rental income after a standard deduction of 20%.
Each of these taxes is calculated separately. If it's more beneficial, a permanent or temporary resident of Hong Kong can choose to be assessed under personal assessment, which aggregates their income or losses from all sources.
The filing for such taxes is commonly known as Profits Tax Returns.
Given the various forms and filing processes that businesses in Hong Kong need to follow for filing the taxes, it can be incredibly confusing for business owners to figure it out independently.
This article will tell you everything you need to know about Profits Tax Returns, along with the forms and the filing processes.
Who Should File Profits Tax Returns With the Inland Revenue Department?
Every Hong Kong company, including small businesses, partnership businesses, and self-employed individuals, is under the obligation to file the Profits Tax Returns.
The Inland Revenue Department in Hong Kong provides the forms for filing the Profits Tax Returns.
There are also allowances available to reduce your tax burden, such as a basic allowance of 132,000 in Hong Kong Dollar (HKD) or a married person's allowance of HKD264,000 if the spouse has no net taxable income or if they choose joint assessment.
There's a one-off tax rebate for the 2021-22 tax year. This rebate equals 100% of the final tax payable for salaries tax and tax under personal assessment, capped at HKD10,000 each.
The Inland Revenue Department issues three forms for filing profit tax returns. These are:
- BIR-51 – Corporations
- BIR-52 – Persons other than corporations (such as partnerships)
- BIR-54 – In respect of Non-Resident Persons (non-resident persons who receive an income from practicing any trade, profession, or business in Hong Kong)
In case you are carrying out a business as a sole proprietor, you can file the Profits Tax Returns through Tax Return – Individuals (BIR60).
For filing these forms, one needs to log on to eTax, the gateway set up by the Inland Revenue Department.
When Do You Start Filing Profits Tax Returns?
If you are a newly registered Hong Kong Company, you must file Profits Tax Returns 18 months from the date of incorporation.
For instance, if your company is incorporated on 1 January 2020, you will receive the request to file PTR around June 2021.
After that, each subsequent PTR needs to be filed annually.
If your company has also commenced business, whether in Hong Kong or outside Hong Kong, you will need to draw up the accounts and report them in your Profits Tax Returns filing.
Corporations need to file their Profit Tax Returns in Form BIR 51 and audited financial statements prepared by a certified public accountant.
Small corporations (where the total gross income of the company is less than HKD 500,000 for the assessment year) need only submit Form BIR51 along with the necessary supplementary forms.
They are exempted from submitting audited financial statements.
However, all the information in Form BIR51 should be based on the audited financial statements.
Maintaining copies of the same is advisable in case the authorities request you to present it.
Please note that the Inland Revenue Department usually requests profit tax returns on the first working day of April every year, and companies must file within one month of the issuance.
The fiscal year in Hong Kong is from April to March, but the company’s accounting accounting year may vary.
What Are Supplementary Forms for Profits Tax Returns?
If you are the beneficiary of any preferential tax treatment or want to claim tax incentives, you can fill up the supplementary forms.
This practice was introduced in April 2019. At present, there are ten such forms:
- Supplementary Form S1 – Person electing for two-tiered profits tax rates
- Supplementary Form S2 – Transfer pricing
- Supplementary Form S3 – Expenditure on research & development
- Supplementary Form S4 – Expenditure on energy-efficient building installation
- Supplementary Form S5 – Ship-owner
- Supplementary Form S6 – Professional reinsurer
- Supplementary Form S7 – Authorized captive insurer
- Supplementary Form S8 – Qualifying corporate treasury center
- Supplementary Form S9 – Qualifying aircraft lessor
- Supplementary Form S10 – Qualifying aircraft leasing manager
Can I Claim Exemption from Profits Tax Returns?
If your business activities occur outside Hong Kong, you are exempted from the Profits Tax Return, even when you remit such profits to Hong Kong.
This allows you to enjoy a tax-free profit.
However, you must file for Profits Tax Exemption to enjoy this status.
The filing includes:
- Filing the Profits Tax Return along with audited financial statements.
- Filing for an offshore status. However, you can only file for this 18 months after filing your first Profits Tax Return.
After this, the Inland Revenue Department, based on the documentation provided and the corporate structure, issues an offshore claim inquiry letter for the firm as proof.
The company's key personnel, including directors, may also need to provide relevant documents to the Department.
Finally, the offshore status is issued — however, you must disclose critical changes to the company structure or status every 12 months from the date on which offshore status was granted.
Can I Get an Extension for the Submission of Profits Tax Returns?
Extensions are provided only if you can show sufficient reasons.
Typically, the Inland Revenue Department offers a Block Extension Scheme at the beginning of each year when companies can apply for extensions for filings.
Failure to comply with the deadlines can result in imprisonment of up to 3 years and a fine up to a maximum of HKD 50,000.
Can I Declare the Profits Tax Return as NIL?
If you have not commenced any operations or carried out any business transactions during the assessment year, the Profits Tax Return can be filed as NIL.
This simply indicates that your company has not conducted any business outside or within Hong Kong.
Final Words
Getting everything organized to file the profits tax return can be an overwhelming task.
It tends to eat up a lot of your time, thanks to the copious amount of paperwork involved.
That's why it makes perfect sense to outsource such activities, so you can have more time to look after your business.
At Air Corporate, we can do just that! We take care of incorporation, secretarial, and accounting tasks and simplify your life.
Our team of experts can help you keep your business on track without you having to break a sweat.
Register your business in Hong Kong with Air Corporate today, or switch your company secretary to us, and we'll handle all your profits tax needs!
