Viewpoints from Kaizen

Section 51C of Inland Revenue Ordinance requires every business to keep sufficient business records. Section 2 of Inland Revenue Ordinance: a corporation is any company incorporated or registered under any enactment or charter in Hong Kong or elsewhere. For tax purpose, the terms “limited company” and “corporation” have the same meaning. The question of whether the corporation is a resident, or a non-resident of Hong Kong does not normally affect its profits tax liability — although there are special provisions applicable to non-residents concerning collection of tax. A corporation carrying on a business in Hong Kong has to file a tax return BIR 51 for every year of assessment. The tax return must be supported by the following: a certified copy of audited Balance Sheet and Profit and Loss Account and Director Report; a certified copy of Auditor Report; a tax computation showing how the Assessable Profits are computed from […]

The beginning figure is: Net Profit / Loss per accounts. Then, to this figure, add:  depreciation, remuneration to business owners (for unincorporated business), domestic or private expenses (for unincorporated business), non-deductible contribution to retirement scheme (for unincorporated business), expenses or losses of a capital nature, less:  gain on disposal of fixed assets, dividends income, non-assessable profits (e.g. those do not have a Hong Kong source), cost of computer hardware and software, cost of patents … etc., cost of manufacturing plant or machinery, depreciation allowance of plant and machinery, Industrial Building Allowance, Commercial Building Allowance, tax loss brought forward, and the balance (if positive) is Assessable Profit. Tax payable = Assessable Profit * Tax rate (Tax rate for corporation: 17.5%; for sole-proprietor and partnership business: 16%) If the balance is negative, it is called tax loss which is to be carried forward to set-off the next year’s assessable profits.

Section 14 of Inland Revenue Ordinance exempts profits arising from the sale of capital assets. Even without this exemption, it is a generally accepted accounting practice that capital income should not be included in trading profits. There are a few court cases on the captioned question: drawing distinction between income from “fixed capital” and income from “circulating capital” — referring the former to “capital receipts” and the latter to “revenue receipts”. It has been established from case law that “fixed capital” is what the owner turns to profit by keeping it in his own possession; whereas “circulating capital” is what he makes a profit of by parting with it and letting it change masters. It follows that land and buildings, plant and machinery, long-term leases and goodwill are fixed capital retained and used in the business — they form part of the permanent structure of the business — any receipt […]

Basis Period for assessment Normally, for a business that has been running on for years, the basis period is either: 1. the period of the year of assessment if the annual accounts ends on 31 March; 2. the accounting year that ends in the year of assessment if the accounts ends on a day other than 31 March; or 3. the lunar year that falls in the year of assessment if the annual accounts so adopts. Commencement of business The day of business commencement declared by the business owner upon registration of business is usually adopted without queries. However, in some cases involving disputes, it is not easy to determine the exact day of business commencement. Indeed, this is largely a question of facts. In general, a retailer starts to trade when goods are first offered for sale. A manufacturer starts trading when the manufacturing begins. A property developer starts […]

The taxpayer can apply for the hold-over on the following grounds: The actual profits are likely less than 90% of the provisional assessable profits assessed. On this ground, the taxpayer has to provide certified management accounts covering at least 8 months of the basis period. Loss brought forward is omitted or incorrect. The taxpayer has ceased trading. The taxpayer (who is a sole-proprietor or a partner) elects for Personal Assessment. The person has objected to the prior-year assessment. Notice of hold-over should be given to IRD at least 28 days before the due date or 14 days after the date of the demand for payment, whichever is the later.

Introduction The registration of a private company is a straight and fast process. The laws in Hong Kong does not require the engagement of professional agent to handle the registration itself. In other words, the founder (the investor or shareholder) can prepare the registration documents and handle the registration process by himself. Normally, the costs incurred for the registration of a private company will be lower should the founder decide to handle it by himself. In this case, the founder is only required to pay the official registration filing fee, business registration fee and costs for making the company chop. If professional agent is appointed, professional service fees will need to be incurred in addition to the official filing fees. Registration Costs (Founder Handles the Registration) As mentioned above, the founder of a company can chooses to handle the registration of a company in Hong Kong by himself. Assuming that […]

1. Introduction The registration of a private company limited by shares in Hong Kong starts with the creation of the company name and ends with the issue of business registration certificate. During the whole process, there are mainly two government departments involved, namely the Companies Registry and Business Registration Office. The detailed procedures are set out below. 2. Registration Procedures (1) Name of Company First, the founder (normally the investor, that is, the first shareholder of a company) should decide what name to use for its intended company. The name of a company to be registered in Hong Kong can be in English, or Chinese or both. (2) Organizational Structure Then, the founder should decide the member of the board of director of the intended company. Normally, the first shareholder will also appoint himself to act as first director of the intended company. Or course, he can also appoint whoever […]

1. Introduction In accordance with the requirements of the Company Ordinance, every company registered in Hong Kong must have a street address as its registered office. 2. Requirements of the Registered Office By law, every company must have a registered office – it’s the company’s address for formal communications. The registered office must be a real address, but it doesn’t have to be the place where you do business. For example, some companies use their accountants for company secretarial services, and the accountant address as their registered office. PO Box numbers alone are not acceptable. In addition, the Company Ordinance does not specify the number of companies which can be registered at the same address. In other words, an address can be used as registered office by unlimited number of companies. 3. Purpose of Registered Office You must be able to deal promptly with any mail sent there. Companies Registry […]

Profits Tax There is only one kind of tax for a Hong Kong company i.e. Profits Tax (Corporate Income Tax) which is at 17.5% on its assessable profits. There is no Value Added Tax (VAT), and no tax on dividend or interest income in Hong Kong. Basically, a Hong Kong company is not subject to Hong Kong taxes if its operations are not carried out in Hong Kong. In determining whether a Hong Kong company’s operations are carried out in Hong Kong, all the company’s operations (starting from customers’ enquiries about product prices, place of orders from the customer, place of a purchase order to completion of sale and purchase) will be considered to find out which processes are carried out in and outside Hong Kong. The location of bank accounts is insignificant for this matter. For instance, a Hong Kong trading company with a bank account in Hong Kong […]