Hong Kong Taxation
The tax year in Hong Kong occurs during the start of April hence businesses have to get ready to report their income, apply for exemptions and account for everything they’ve got in their business. Hong Kong is one of the countries where the tax system is great to both businesses and individual taxpayers.
You will be taxed in Hong Kong only if your taxes are calculated on income generated from a trade or business carried on in Hong Kong, which is currently 16.5% on the profits. If your firm is incorporated in Hong Kong but the earnings are generated outside of the region, it will not have to pay taxes.
There are no inheritance taxes, capital gains taxes, withholding taxes on interest paid to foreign creditors, or dividend withholding taxes for non-residents.
Hong Kong Tax Governing Authority
The Inland Revenue Ordinance is the official body for corporate and individual tax matters in Hong Kong, which has the power to acquire funds in a cost-effective and efficient manner. The governing body also promotes compliance through public information campaigns, education, and enforcement of law.
For a year of assessment, the IRD allows for the collection of three independent direct taxes: Profits Tax, Salaries Tax, and Property Tax. The profits tax, salaries tax, and property tax are all imposed by the IRD.
What you will learn:
Guide to Filing Tax
Tax filing can be a challenging and daunting experience, whether you’re doing it for the first time or have been doing it for many years. The following information will explain the essentials of what happens during hk tax season and what you must submit and file. We’ll also discuss deductions, allowances, and incentives.
What type of tax return needs to be filed?
- Employer’s Return
The IRD generally sends the Employer’s Return to businesses during the first week of April, therefore the director would have to finish and submit it back to the IRD within the first month of receiving it. This regulation applies to everyone, whether you have never employed anybody or not, and there will be repercussions for those who do not follow it. For new companies, you will get the form within three to six months after your initial audit.
Regardless of where their staff worked (in Hong Kong or abroad), the employer must complete either the BIR56A form or the IR56B form.
The IR56B form is a cover letter for all IR56A forms that an employer would submit and the number of IR56B forms submitted by an employer corresponds to the number of employees he has.
BIR56A Form includes:
- Company’s name and address
- Name of the officer who compiled the Employer’s Return
- Number of the IR56B forms completed
- Forms they were submitted and the format they were submitted on aka hardcopy, online or mixed
IR56B Form includes:
- An employee’s personal particulars
- Position in the company
- All salaries, benefits and pensions they have received
For profit tax purposes, Corporation and Partnership Businesses are issued with profits tax returns. The form will be issued during the first week of April and would need to be submitted in early May.
- If your profits are from a corporation then you will need to file the BIR51 form
- For non-residents in Hong Kong, they will need to file the BIR54 form
- With respect for persons other than corporations the form, they will need to file is the BIR52 form
- Individual Tax Return
You must submit a BIR60 form to declare your incomes, rental income from only owned properties and profits from sole proprietorship firms. The form will be issued during the early week of June and would need to be submitted during early July.
When are those tax returns needed to be filed?
It depends entirely on when your business’ financial year-end is so:
|Financial Year-End||Tax returns need to be filed|
|31st of March|
|31st of December||
|Other dates a) than or b) 30th June||
Tax incentives, allowances and deductions
Here are all of the different allowances, incentives and deductions a company can obtain…..
- Tax Incentives
There are no particular incentive programs for overseas investors or foreign-owned enterprises, but Hong Kong’s double taxation exemption, excellent infrastructure, favourable tax rates, and duty-free status make it an appealing destination for prospective investors.
If a taxpayer is assessed to salaries tax, they may claim the following allowances….
- Married Person’s Allowances
- Single Parent Allowance
- Child Allowance
- Dependent Brother or Dependent Sister Allowance
- Dependent Parent and Dependent Grandparent allowance
- Disabled Dependent Allowance
Allowances for personal taxes may only be claimed if you are filing as an individual. Although there are no other allowances in the other tax returns, many companies may benefit from low tax rates and no tax fees because of their tax structure.
There are several deductions that you can claim from the Hong Kong government while submitting your taxes to the authorities of Hong Kong, such as…
- Mandatory Contributions (other contributions like voluntary contributions are not taken as deduction)
- Charitable donations
- Self Education Expenses
- Home Loan Interest
- Elderly Residential Care Expenses
While attachment of the papers is not required when applying for deductions with your tax return, it is advised to keep them safe since you must retain them for six years in case the IRD asks you for a supporting document for proof.
What are the documents needed for tax filing?
- Profit Tax Return
Here is a list of the supporting documentation needed for hk tax filing for Profit Tax Return alongside the return form….
- A certified copy of Statement of Financial Position/ Balance Sheet, Auditor’s Report where required by Hong Kong or Foreign Law or has otherwise been prepared and statement of Comprehensive Income/Profit and Loss Account in respect of the basis period
- A tax calculation with supporting schedules showing how the amount of the accessible Profits has arrived
- Other documents and information as specified in the notes and instructions
- Employer’s Return
You will need to have these records for the Employer’s Return:
- Keep the payroll records of your employees for at least 7 years
- Report all of the remuneration paid to the employee by submitting an annual employer’s return (BIR56A and IR56B) alongside the following forms:
- Individual Tax Return
You will need to submit the BIR60 form that reports the salaries, rental income from solely owned properties and profits from sole proprietorship businesses and to elect personal assessment so the documents required are…
- Identification Documents
- Proof of income
- Expenses related documents
- Taxes documents paid by you
- Tax preparation for director deposit
- Proof of losses if any
What is the process of tax filing?
The tax filing procedure in Hong Kong is as follows:
- The company prepares the management reports, which are given alongside the supporting documents to the auditor who reviews them.
- The Auditor finishes the audit report and audited accounts are confirmed and finalised
- The Profit Tax Return is submitted along with the audited financial statements and tax calculations.
- IRD reviewed and conducted the tax assessment
- IRD issued the tax assessment notice to the company
- The company can challenge the tax assessment within one month after receiving the notice. If they do not, they must pay the tax by the due date.
What are the penalties for late tax filing?
Another thing to consider about tax filing is that you should avoid submitting them late since you may be fined and your company will not be presented in the best light. If you violate any of the laws and regulations in Hong Kong, you may be fined between 1,200 and 10,000 Hong Kong dollars and/or be prosecuted. It may be beneficial to work with a CPA and give them all of the documents as quickly as possible so you don’t have to worry about any unpleasant consequences.
If you fail to submit the annual tax return by the due date, there will be a penalty amount of 10,000 HKD and also additional tax for any amount undercharged.
- First Offense
The first offence penalties are either:
- 10% of the amount of tax undercharged
- 20% of the amount of tax undercharged if the return is filed after two or more estimated assessments are issued
- Second Offence
If you have committed the second offence within 5 years after the first one then the penalties are:
- 20% of the amount of tax undercharged
- 30% of the amount of tax undercharged if the return is filed after two or more estimated assessments are issued
- Third or subsequent offence
If you have committed the third or subsequent offence within 5 years after the second one then the penalties are…
- 35% of the amount of tax undercharged
- 50% of the amount of tax undercharged if the return is filed after 2 or more estimated assessments are issued
What are the tips to avoid late tax filing?
While there may be reasons why you may miss a tax deadline, it’s vital to keep in mind that submitting on time is preferable unless you want to incur substantial penalties therefore here are some tips for filing on time:
- Keep papers in good records
Organising your papers makes tax preparation easier therefore preparing their taxes throughout the year with a tax file and keeping a separate file with the correct paperwork to save time and money is recommended.
- Start Earlier
For the year 2022, these are the filing dates for companies. They may start earlier and submit their tax papers on time (which do change every year therefore please check the profit tax return website).
These are the filing deadlines for firms in 2022:
|Accounting Date||Extended Due Date|
|1 April 2021 – 30 November 2021
(Accounting Date Code “N”)
|30 June 2022|
|1 December 2021 – 31 December 2021
(Accounting Date Code “D”)
|31 August 2022|
|1 January 2022 – 31 March 2022
(Accounting Date Code “M”)
|15 November 2022|
Outsource tax filing to reliable organisations:
Outsourcing your tax filing responsibilities to a reputable organisation may actually be more useful for you since the firm can perform the procedure to ensure that your taxes are not submitted late and that they are correctly completed, all of the required documents have been submitted and all of your concerns are answered. Outsourcing duties to a trustworthy business will relieve you of worry, knowing that they are being done correctly and you may focus on other essential tasks.
Be prepared at meetings with your tax preparer:
What are the benefits/opportunities of outsourcing tax filing?
Many organisations prefer to outsource their tax filing responsibilities to save time, energy and free up resources to focus on business processes, improvement and cost savings.
Here are the key advantages of hiring a tax professional to assist you with your taxes.
- Save Time and focus on your business
Tax preparation is a time-consuming task since you must double-check the data and obtain tax declarations before the final report is completed therefore it’s advisable to outsource tax filing responsibilities to save time for planning and supervising daily operations and expanding your business.
- Reduce costs
The most common reason why businesses outsource their responsibilities is to cut expenses because there are several hidden expenses associated with employing someone like paying them salaries and benefits, equipment for them and training as opposed to just outsourcing the service and paying for it so that all of the other money might be spent on your business in a more profitable manner.
It’s crucial to remember that not many organisations can afford to hire their own professionals and they frequently run the danger of taking on and training inexperienced staff who lack the required expertise or knowledge so when you outsource your service, you eliminate this problem.
- Access to higher skill sets and expertise
You’ll be able to get access to an expert who is knowledgeable and experienced with tax and regulatory modifications and they’ll be able to provide the specific information that the governing body may require in company tax returns as well as access to the most up-to-date procedures and technology, which might be costly.
- Preserved flexibility
As your company expands, you may need a larger workforce for tax preparation but if the expansion does not continue, they might need to discharge some employees. As a result, it’s perhaps best to outsource with a firm that can adapt to your changing demands and is flexible enough to accommodate whatever way your business grows.
- Mitigate risks
Another benefit of hiring an external company is that employee fraud is unlikely since it’s typical in businesses that do their own tax preparation and the people in charge of preparing tax returns frequently steal money.
It’s also worth noting that by continuing to use a third-party provider, you reduce the risk of internal fraud and increase compliance, allowing you to identify whether or not internal fraud occurred and how. They can also deliver independent checks and balances, which improves accurate and transparent compliances.
How to choose the right auditor
Choosing the proper auditor is a crucial selection since the relationship would continue for years, you’ll need to interact with them annually and they will be an important part of the organisation. It’s critical that you examine the following characteristics while looking for an auditor.
To be able to do statutory audits, businesses and individuals must go through a long procedure that includes previous experience in the field and several university credits so don’t hesitate to ask and ensure that you look into the auditor’s training and qualifications to know that they are certified to perform the audit for your company and are licensed by the Hong Kong Institute of Certified Public Accountants (HKICPA).
- Industry expertise
Considering every business has different needs, you want to choose an auditor that has an extensive amount of experience in dealing with the type of industry your business is in and is familiar with your industry’s goals and issues hence saving time, money and making the whole process more efficient. Their valuable insights on the industry can also help boost your business.
- Use of Technology
It’s critical for your auditor to be up to date with the newest technology and data analytics in order for your reports to be produced to the highest possible standard. These two tools can help audit procedures run more smoothly and quickly while accessing findings, interpreting data provided, focusing on business ramifications, all of which would benefit the client and provide extra value to their business by encouraging and assisting them in taking future-focused measures to enhance their operations.
- Quality assurance process
It’s important to make sure you ask about the auditor’s internal quality assurance system before making a selection. The auditor should be able to show how their professional service quality is achieved including compliance with relevant regulatory standards, auditing criteria and reporting best practices. Don’t be afraid to ask questions about peer review processes, auditor training techniques, development plans, and accreditations to be sure about their quality assurance process.
When researching an auditor, it’s important to consider the auditor’s strengths and weaknesses as well as the reviews, references and accolades of the auditor to understand their value and reputation in the market. Choosing a business with a well-known name and demonstrated experience means you’ll be working with one that has probably helped create the audit and evaluation standards.
It’s highly important to choose an auditor, with a good reputation, since even your reputation will be at stake if you hire an auditor with a poor or terrible reputation hence why it’s important to look into their reputation and analyse them to know whether there should be any grounds of concern or not.
- Ongoing support
Choosing an auditor that showcases friendliness, great professional service and support would be quite useful since this will be a long-term relationship and you’ll be counting on them to do such an essential task for your company hence it’s important to make sure that they can provide all the help you will need throughout the year and are prompt to bring up any issues that you don’t know about.
How can Fastlane Help?
In conclusion, we hope this article has informed you about the tax filing process and made things easier for you to understand. Fastlane Group has helped over 500 companies with tax filing duties over the years and would be able to help you with your specific needs, no matter how complicated it may be so why not get into contact with us now to make the whole tax filing procedure as simple and easy as it can be.
We are also able to help you with other services like accounting services, auditing, legal, tax, banking support and company formation if you require these services alongside tax filing if you need these services too.