Profit tax

Profit tax

Profit tax in Hong Kong is Direct tax and also classified into Income tax.

According to Cap.112 Hong Kong Ordinance, Inland Reveue Ordinance (in short, IRO) IRO Section 14, unless otherwise provides, profit tax shall be charged at the standard rate on any person who carries on a trade, profession or business in Hong Kong and assessable profits arising in or derived from Hong Kong for a year of assessment.

Tax computation

The formula is:

: HK profit tax payable = Net assessable profit X Profit tax standard rate

: Net assessable profit = Assessable profit - Loss brought forward (if any) + Loss transferred from partnership (if any)

: Assessable profit = Profit or (Loss) per financial account + (Disallowable expenses charged in account - Non-taxable income credited in account) - Depreciation allowances - Approved charitable donations

Approved charitable donations

The Approved charitable donations are limited to 10% of the amount after deducting of the Depreciation allowances, per IRO Section 16D. And after the amendment recently, it is changed to 25% of the amount after deduction of Depreciation allowances

Profit Taxpayer

The term person includes corporation, partnership, trustee and sole properiter and so on.

Year of Assessment

The period of assessment mostly is from April 1st to March 31st of the following year, but it is up to taxpayer's wish with reasonable excuse. The example is financial year of the business.

Badges of Trade

Any trade may be subject to profit tax unless a reasonable man can provide evidence to proof that there is no any revenue profit. In Hong Kong, capital profit is not subject to tax.

In order to proof the nature of a trade, the badges of trade are to be considered including the taxpayer's intention of profit, the length of ownership, frequency of similar transactions, reason for disposal, supplementary work and so on.

See also

* Inland Revenue Department (Hong Kong)
* IRO Section 5 Property tax
* IRO Section 8 Salaries tax

Reference links

* [http://www.legislation.gov.hk/blis_ind.nsf/CurAllEngDoc?OpenView&Start=112.1.28&Count=30&Expand=112.1#112.1 Cap.112 of Hong Kong Ordinance, Inland Revenue Ordinance (in short, IRO) IRO Section 14]
* [http://www.ird.gov.hk/eng/tax/bus.htm HK Inland Revenue Department: Questions and Answers]
* [http://www.ird.gov.hk/eng/tax/ind_tra.htm#item01 Different profit tax standard rates apply to corporation and unincorporated business]


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