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Hong Kong Profits Tax is one of Hong Kong companies' basic taxes. It is territorial in nature and only profits which are deemed to have, a Hong Kong source are subject to Profits Tax. If a Hong Kong company does not carry on business in Hong Kong or if it income is generates outside of Hong Kong is not subject to Hong Kong tax (offshore status application).
Basic Requirements for Hong Kong Profits Tax
To be liable to Hong Kong Profits Tax, a company must meet three basic tests as set out by the Privy Council in the Hang Seng Bank case. These tests are:
1. The company must be carrying on a trade, profession or business in Hong Kong;
2. The company must be generating profits from that trade, profession or business of a type which are subject to Profits Tax, for example, trading profits or commission as opposed to non-taxable capital gains or dividends; and
3. Those profits must have a Hong Kong source.
Hong Kong Profits Tax Rate
The current profits tax rate is 16.5% on assessable profits. All companies are subject to the same profits tax rate irrespective of their residential status.
Hong Kong Tax Return
Hong Kong Tax Return is refers to the reports filed with the department of the Hong Kong Inland Revenue Department containing information used to calculate the taxes and declare liability for taxation. Tax returns are generally prepared using forms prescribed by the tax authority.
Hong Kong Tax Return Requirements and Deadlines
The IRD of Hong Kong generally issues the corporate profits tax returns on the 1st of April every year. Normally, profits tax return should be filed within 1 month from the date of issue. The company has to file and complete the tax return together with the following supporting documents:
1. A certified copy of the Balance Sheet, Auditor’s Report and Profit & Loss Account pertaining to the basis period.
2. A tax computation with supporting schedules showing how the amount of Assessable Profits (or Adjusted Loss) has been arrived at.
2. Other documents and information as specified in the Notes and Instructions of the profits tax return.
Hong Kong is an ideal jurisdiction in which to incorporate a company with generates profits outside of Hong Kong. Hong Kong is officially a low tax jurisdiction which provides simple, certain and straight forward legislation. With proper planning, Hong Kong company which income is generates outside of Hong Kong is not subject to Hong Kong tax (offshore status application upon fulfill requirement).
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