Q: What is the profits tax rate in Hong Kong?
Currently, a two-tiered profits tax system is in place. The tax rate is 8.25% for the first HK$2 million of profit, and 16.5% for subsequent profits. For sole proprietorships or partnerships, the two-tiered profits tax rates are 7.5% and 15% respectively. If a company has no profit, no profits tax is payable.

Q: Which month does a Hong Kong company close for the year-end?
The tax base period is usually March 31 or December 31 of each year. If it is the first year, the tax base period can be up to 18 months.

Q: Are goods imported and exported to Hong Kong subject to customs duties?
Generally, no customs duties are required for imported or exported goods; only customs declaration is necessary. However, customs duties are required for items other than tobacco, alcohol, and gasoline.

Q: Are all limited companies required to undergo auditing?
Directors of a limited company are required to prepare legally compliant financial statements for each financial year of the company. Therefore, in addition to meeting the tax filing requirements, timely completion of the audit also fulfills the requirements for directors under the Companies Ordinance.

Q: When does a limited liability company close for the year?
Limited companies can freely choose any time as their tax base period. Generally speaking, Hong Kong limited companies often use March 31 or December 31 of each year as their tax base period. In addition, the longest tax base period for a limited company in its first year is 18 months. Limited companies can choose a suitable time as their first tax base period within 18 months of incorporation.

Q: What documents do I need to provide when preparing for an accounting or audit?
Your company needs to provide the previous year's audit report, bank statements, sales or revenue invoices, purchase or processing fee invoices or receipts, expense invoices or receipts, and invoices or receipts for the purchase or sale of fixed assets, etc.

Q: Can your company provide Hong Kong accounting and tax services?
Yes. You only need to provide the relevant information, and we can handle your company's accounting, auditing, and tax filing matters. The cost will depend on the actual workload. Please contact us for details.

Q: Can a Hong Kong company's profits offset losses from the previous year?
Losses incurred in a tax year may be carried forward and used to offset the company’s profits in subsequent years.

Q: What is meant by provisional profits tax?
Profits tax is levied based on actual profits during the tax year. Since profits for a given year cannot be determined until the end of that year, the Inland Revenue Department collects provisional taxes before the end of the year. In the following year, once the profits for that year are assessed, the provisional taxes already paid can be used to pay the profits tax payable for that year.

Q: Under what circumstances are Hong Kong companies exempt from paying profits tax?
If a company's revenue does not originate in Hong Kong, and the company does not have an office in Hong Kong or employ Hong Kong staff, its profits are exempt from profits tax. However, it needs to apply to the Hong Kong Inland Revenue Department for an offshore income tax exemption.

Q: My Hong Kong company only has a bank account to collect and pay payments for goods from my Chinese company. Does the Hong Kong company need to keep accounts, conduct audits, and file taxes?
Yes, it is necessary. Since the company is established for profit, even if the Hong Kong branch only plays the role of collecting and paying on behalf of others, it is still necessary to keep accounts and conduct audits. By keeping accounts, the entire process of collecting and paying on behalf of others can be listed out, and then the actual income of the Hong Kong company can be determined as appropriate.

Q: Our company only has accounts with foreign banks in mainland China and not in Hong Kong. Does this mean our business transactions do not need to be reported for tax purposes in Hong Kong?
No. Hong Kong law stipulates that all Hong Kong companies are obligated to declare their financial position to the Hong Kong Inland Revenue Department, regardless of whether their business takes place in Hong Kong. If a company's income does not originate in Hong Kong, it can apply to the Inland Revenue Department for a tax exemption.

 

Commonly used reference materials
Consequences of Failure to Pay Taxes on Time: Under section 71(1) of the Inland Revenue Ordinance (Chapter 112), taxes levied under the Inland Revenue Ordinance must be paid in the manner instructed in the notice of assessment on or before the date specified in the notice. Failure to do so shall be deemed as tax arrears.

 

If the taxpayer fails to pay the first installment of tax by the date specified in the Notice of Tax Assessment, the second installment will be deemed immediately due. The total amount of tax payable not yet paid as stated in the Notice of Tax Assessment will be considered as tax arrears, and the Inland Revenue Department may immediately pursue its collection.

 

The Commissioner of Inland Revenue may immediately take statutory tax collection actions (including imposing a 5 percent surcharge, issuing tax collection notices to third parties, and taking legal action) in accordance with Part XII of the Inland Revenue Ordinance to recover outstanding payments.

Data source: Inland Revenue Department and relevant government departments