Viewpoints

The Field Audit and Investigation Unit of Inland Revenue Department (IRD is responsible for conducting tax field audits and investigations on businesses and individuals with a view to fight against possible tax evasion and avoidance. In field audit, the IRD officers visit taxpayer’s business premises and examine the accounting records kept by the taxpayer in order to see if the reported profits are correct. Tax investigation is an in-depth examination where tax evasion is suspected. It usually covers 6 years of assessment prior to the year of assessment in which the investigation commences. In the case of fraud or willful evasion, the investigation can be extended to cover 10 years of assessment. Besides cases being selected on a random basis, the IRD has indicated that the field audit and investigation works are largely targeted at areas where non-compliance is apparent. Field audit or investigation is normally initiated where there are […]

Where there is a tax assessment raised by the Inland Revenue Department, the taxpayer, who disagreed with the assessment raised against him, must object to the assessments within the statutory one-month period as stipulated by section 64 of the IRO. Otherwise, the tax assessment will become final and conclusive in terms of section 70 of the IRO. In the case where the appellant has made an objection to an assessment, the assessment does not become final and conclusive until the determination of the objection (and if the determination is appealed against, until after the determination of the appeal). When the tax assessment became final and conclusive, there is no right for the taxpayer to ask for re-open the assessment. (Though in certain cases, the Commissioner is still of the rights to raise additional assessments where circumstances are warranted.) Despite an assessment had become final and conclusive, a taxpayer may invoke […]

Hong Kong offers good opportunity for offshore arrangements. The territorial concept of its taxation system renders only those profits which arise in or are derived from Hong Kong are subject to tax. The residence or citizenship of a taxpayer is not relevant at all. The tax law states clearly that only profits arising in or derived from Hong Kong are chargeable to profits tax. It is well established law that the following three conditions must be satisfied before a profits tax liability arises in Hong Kong: The person must carry on a trade, profession or business in Hong Kong; The profits to be charged must be from such trade, profession or business carried on by the person in Hong Kong; and The profits must be profits arising in or derived from Hong Kong. In most cases involving offshore arrangements, conditions (a) and (b) are easily satisfied. For condition (c), the […]

Advance Ruling under section 88A of the Hong Kong Inland Revenue Ordinance is for those who wish to ascertain the tax position of a contemplated transaction or arrangement make an application for a ruling from the Commissioner of the Inland Revenue Department (IRD). Such ruling will only be given for a seriously contemplated transaction but not for hypothetical situation or for a matter where the profits tax is due and payable. The Commissioner will decline to make such ruling in some circumstances, such as the applicant has not provided sufficient information; or the Commissioner considers that it would be unreasonable to make a ruling in view of the resources available to him. The ruling, if made, will state the identity of the taxpayer; the applicable statutory provision and arrangement; the covered period; and any material assumptions made. It will be legally binding on the Commissioner provided that the taxpayer precisely […]

Advance tax ruling A person can ask the Inland Revenue Department (IRD) to make a tax ruling on a transaction which he is going to do upon payment of a fee. But the IRD will not make a tax ruling on the following. Prosecution; Tax penalty; Tax recovery action; The correctness of a tax return; To determine or establish a question of facts — for example to rule on whether a trade is carried on or whether a sale of asset is taxable; The ruling requires the Revenue to make assumption on a future event; Any matter being processed under the objection procedures; Any matter in a tax return which has been already filed with the Revenue; Any matter concerning the interpretation of a generally accepted accounting principle or a commercial practice; Any matter involving the interpretation of a foreign law; The IRD opines that the matter is not seriously […]

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, […]

The laws on stamp duty are set out in the Stamp Duty Ordinance. Stamp duty is either a fixed fee or is calculated ad valorem depending on the nature of the transaction. As far as individuals are concerned, it is payable on: Leases, assignments and conveyances of immovable property. The transfer of shares or marketable securities The transfer of bearer instruments (being instruments under which ownership is transferred through physical delivery). Immovable Property Stamp Duty Rates 2 separate rates of stamp duty are payable on immovable property: The Conveyance of a Freehold or the Assignment of a Leasehold: The rate of stamp duty is progressive and varies from US$13 if value of the transferred interest is less than US$128,000 to a maximum rate of 3.75% where the property is valued at more than (approx.) US$800,000. The Granting of a Short-Term Lease: The stamp duty rate is progressive and varies between […]

Documents Subject to Stamp Duty The Hong Kong Stamp Duty Ordinance imposes duty on certain types of documents, which are mainly as follows: – Conveyance on sale, Agreement for sale of residential property, Lease of immovable property, and Transfer of Hong Kong stock.  How to Stamp Documents You may present the documents for stamping to the Hong Kong Stamp Office in person. Alternatively, you may send in the documents by post. If the documents are forwarded by post, the documents will be assessed, and you will be advised of the amount of stamp duty payable. Once your remittance is received, the document will be stamped and returned by registered post, usually within seven working days after receiving payment of the stamp duty. Documents to be brought along for stamping transfer of Hong Kong stock or lease of immovable property: Nature of Document for Stamping Documents Required Transfer of Hong Kong […]

General A sole proprietorship business is the kind of business that is conducted by one person. The person runs the business on his own without sharing his business with anybody. He gets all the profits of the business, but he also takes up all the risks of the business. Although a sole trader does not have to be responsible to any business partners, he is wholly liable for all the debts incurred in the business. An investor may consider using sole proprietorship as the device for conducting his business:  if this is the first time, he runs a business;  if he is thinking of setting up a small business;  if he wants to make things simple and avoid complicated formalities;  if he has adequate finance to run the business so that he does not need to get financial assistance, e.g. obtaining a loan from the bank […]

Sole Proprietorship or also commonly known as Sole Trader Any individual carrying on a business on his/her own behalf will be a sole trader. Sole traders are self-employed and pay income tax on the profits made by the business. Advantages  It is easy and quick to start trading as a sole trader as there are no formalities to comply with other than notifying the Tax Authorities.  The business itself is flexible. Any decisions and changes can be made easily as there is only one person to make the relevant choices.  All the profits generated by the business will belong to the sole trader.  Sole traders own their business and so are able to sell or transfer it as they wish. Disadvantages  A sole trader has unlimited liability. This means that if the business should collapse, the sole trader could lose not only the cash and […]