Viewpoints

On 27 February 2019, the Financial Secretary of Hong Kong, Mr. Paul Chan, delivered 2019/2020 Budget. He proposed a one-off reduction of profits tax for the year of assessment 2018/19 by 75%, subject to a ceiling of HK$20,000 per case. This concessionary measure is applicable for the profits tax for the year of assessment 2018/19, that is, for the accounting period from 1 April 2018 to 31 March 2019. No additional application for this proposed concessionary measure is required. Taxpayers should file their profits tax returns as usual. Although this proposed concessionary measure is subject to review and approval by the Legislative Council of Hong Kong, it will generally be adopted based on experience. Hong Kong’s Tax System Hong Kong adopts a territorial source principle of taxation. Only profits arise in or are derived from Hong Kong are taxable here. Profits sourced elsewhere are not subject to Hong Kong Profits […]

As part of the financial accountability that most entities provide to investors, board members, and constituents, the use of audited financial statements are common. Essentially, audited financial statements are simply the accounting documents that are prepared by a Certified Public Accountant on behalf of a business or non-profit organization. Here are some basic facts about audited financial statements, and how they are used. The source documents for the audited financial statements are usually provided by the organization wishing to have an auditor prepare a financial statement. This will often include a wide range of financial documents, such as Accounts Payable and Receivable information, expense reports, budgets, and any other type of financial record that the organization has in its possession. The purpose of the accountant is to take these various financial statements, evaluate and cross-reference them, and provide a professionally prepared audited financial statement that the organization can then present […]

Territorial Source Principle Hong Kong Tax law adopts a territorial source principle of taxation. It means Hong Kong taxable profits only arise while such profits are derived from a trade, profession, or business carried on in Hong Kong. Basically, it seems quite clear and applies easily. However, over the years disputes about this subject and many related authoritative court decisions emerged, currently the Inland Revenue Department (IRD) will consider the following principles to evaluate whether the Hong Kong income is taxable or just offshore income only: – Matter of fact; The operations test; Gross profits from transactions; Place where decision is made; and Business presence overseas Based on the above principles, the Inland Revenue Department (IRD) also will classify whether profit is from trading business or from manufacturing business. Taxation of Trading Business For trading business, Inland Revenue Department’s practice to determine the locality of profits from trading in goods […]

Hong Kong does not have capital gain tax and under usual circumstances gains from disposal of property are not subject to tax.      Under Hong Kong tax law, “profits arising from the sale of capital assets” are outside the scope of charge for profits tax. Therefore, if the property sold is a capital asset, the profit arrived from the disposal will not be subject to tax. On the other hand, if the purchase and sale of property was trade, the profit will be assessable to profits tax.      In determining whether an asset was acquired as a capital asset or trading stock, the Revenue will look at (1) the taxpayer’s intention at the time of the acquisition; and consider (2) whether the taxpayer had engaged an adventure in the nature of trade. Generally, if the taxpayer bought a property and resold it within a short period, say, within […]

1. Keeping payroll records (1) Your tax obligations commence when you hire the first employee (2) On hiring the employee, you have to maintain a record of that person’s: (a) personal particulars: name, address, identity card or passport number with country of issue, marital status (b) nature of employment: full time or part-time (c) capacity in which employed: e.g. sales manager, salesman, worker, in-house lawyer, accountant, director (d) amount of cash remuneration: regardless of denomination in domestic or foreign currency and remuneration paid overseas (e) non-cash and fringe benefits: such as quarters, holiday journey benefits, share award, share option (f) employer’s and employee’s contributions to the Mandatory Provident Fund (MPF) or its equivalent (g) employment contract and amendments to terms of employment (h) period of employment (3) You have to inform the Inland Revenue Department (“IRD”) the following: (a) any change in the employee’s personal particulars (such as change in […]

Persons Subject to Tax in Hong Kong Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong, are subject to tax on all profits (excluding profits arising from the sale of capital assets). If a person sells his flat or any property as part of a profit-making scheme, it will be regarded as a business and he must pay tax on any profit made. The assessable profits (or adjusted loss) are the net profits, or loss–other than profits (or loss) arising from the sale of capital assets–for the basis period, arising in or derived from Hong Kong. Source of Income Income is considered sourced where the operation that generates it takes place. Thus all profits arising in or deriving from Hong Kong are taxable, except (1) offshore income from operations that are substantially conducted outside Hong Kong, (2) dividend receipts and […]