Hong Kong Tax – Advance Ruling (Part 1)

1. Advance Rulings (to obtain early decisions on uncertain tax matters

A taxpayer may apply to the Commissioner of Inland Revenue (Inland Revenue Department, Hong Kong tax authority), subject to the payment of a fee and certain regulations, for a ruling on how any provision of the Hong Kong Inland Revenue Ordinance applies to him/her or the arrangement specified in the application. A ruling will only be given for a seriously contemplated transaction with full particulars set out. The ruling is binding on the Commissioner and can be relied upon for the subsequent tax assessment. However, the ruling on any specific case should not be relied upon for other cases.

According to Part I of Schedule 10 of the Inland Revenue Ordinance, however, advance ruling will NOT be provided in certain cases. For example, the matter on which a ruling is sought involves the imposition or remission of a penalty, whether a tax return or other information provided by a taxpayer is correct or not, etc.

2. The Difference between the Advance Ruling procedure and an Objection against a Tax Assessment

An objection can only be lodged after a taxpayer has submitted the tax return AND received the relevant tax assessment from the Inland Revenue Department.

An application to the Inland Revenue Department (IRD) for advance ruling must be made before the submission deadline of the relevant tax return.

Indeed, in addition to raise an object against a Tax Assessment, the taxpayer could also submit an offshore claim with supporting at the time of submitting the profits tax return. If supporting is not provided at the time of filing the profits tax return and offshore claim, the taxpayer will have to so after the submission.

3. Fees for Application for Advance Ruling

The fees payable in respect of an application for a ruling as specified under Part II of Schedule 10 of the Inland Revenue Ordinance are as follows:

(i) for a ruling on whether profits are to be treated as chargeable to profits tax under section 14 of the IRO as arising in or derived from Hong Kong $30,000
(ii) for a ruling on whether remuneration is to be treated as chargeable to salaries tax under section 9A of the IRO $10,000
(iii) for any other ruling $10,000

(Note: If the time spent by the IRD in respect of the ruling procedure is too long, additional fees may be imposed.)

As you can see from the above, the application fees for an advance ruling involve a considerable amount of money. And, this is only the fees to be paid to the Inland Revenue Department. There are also fees to the professionals considering that it is likely that a professional tax agent/adviser needs to be appointed to process such an application. It may not be cost-effective to get an advance ruling on a tax dispute that only involves a small sum of money.