Hong Kong Profits Tax – Computation of profits tax liability

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.