FAQs of Hong Kong Taxation
FAQs of Hong Kong Taxation
FAQs of Others
- Q:
- When do I need to make the preparation and filing? Are they compulsory? What’s the consequence if I don’t prepare?
- A:
- The IRD requires Hong Kong entities with group (in a broad sense) structures to prepare and file their master files and local files for accounting periods commencing on or after 1 April 2018; Enterprises will be exempted if their size of business or amount of non-Hong Kong related party transactions do not exceed the following annual threshold. Otherwise, the preparation is required:
(Financial assets include accounts receivable, notes receivable, other receivables, equity investments, bond investments, derivative financial instruments and other financial assets, but exclude the issuance of equity securities and receivables arising from the sale of goods to related parties.)I. Exemptions Based on the Size of Business Total Revenue
(the aggregated amount of all kinds of revenue and income disclosed in the financial statements, including other comprehensive income)Not more than HK$ 400 million If an entity meets any two of the requirements, it is not required to prepare any master file or local file. Total Assets
(all assets disclosed in the financial statements, not excluding any liabilities)Not more than HK$ 300 million Average Number of Employees
(the total number of employees, including full-time, part-time and loaned personnel, at the end of each month of the year divided by the corresponding number of months)Not more than 100 II. Exemptions Based on the Amount of Related Party Transactions Transfer of Assets
(except financial assets and intangible assets)Not more than HK$ 220 million If the amount of one type of related party transactions falls below the threshold during the relevant accounting period, the entity is not required to prepare any local file for such transactions. Transfer of Financial Assets Not more than HK$ 110 million Transfer of Intangible Assets Not more than HK$ 110 million Other Transactions Not more than HK$ 44 million
- Q:
- What is a group (in a broad sense)?
- A:
- A group (in a broad sense) includes:
- A group (in a common sense), which is a group of enterprises connected by ownership or controlling and the connection has the following effects:
- In accordance with applicable accounting principles, the group of enterprises are required to prepare consolidated financial statements for financial reporting purposes; or
- If the beneficial interest of any enterprise in this group is traded on a public stock exchange, the group of enterprises shall prepare consolidated financial statements as aforesaid
- A single enterprise, which is a tax resident in one jurisdiction, but carries on its business through a permanent body established in another jurisdiction and is taxable in respect of that business in that jurisdiction
- A group (in a common sense), which is a group of enterprises connected by ownership or controlling and the connection has the following effects:
- Q:
- Is it necessary to prepare files every year?
- A:
- Hong Kong entities are required to update their master files and local files annually unless they are eligible for exemption. However, if the controlled transactions or business activities remain consistent from year to year, certain information in the local files may continue to be used without updating for three years after completing preparation. The local files shall be reviewed and updated in the event of any changes affecting transfer pricing.
FAQs of Salaries Tax
- Q:
- My spouse and I have two children, so can each of us apply for child allowance of one child?
- A:
- One of the couple should apply for all child allowance. Generally speaking, it is more favourable for one of the couple who earns higher income to apply for child allowance. However, if one of the couple is assessed at standard tax rate, it is more favourable for the other to apply for child allowance.
- Q:
- How will Inland Revenue Department deal with having more than one person entitled to apply for child allowance in respect of one unmarried child?
- A:
- If taxpayer, his/her separated or divorced spouse and other person are all entitled to apply for child allowance of one unmarried child, the Commissioner of Inland Revenue shall determine the basis for allocation of the child allowance according to each applicant's contribution to the nurture and education of that child.
- Q:
- Can taxpayer who raises an illegitimate child apply for child allowance?
- A:
- If child meets the requirements of application for child allowance, his/her parent whether duly married or not, can apply for this child allowance.
- Q:
- My son is 20 years old this year. He has not found a job since graduation in June of this year, will I be entitled to apply child allowance for my son?
- A:
- If you raise one child over 18 but under 25 years old, this child should receive full-time education during relevant taxable year before you can obtain this child allowance. According to your case as referred to, your son has received full-time education from April to June of this year, so you are eligible to apply for this child allowance.
- Q:
- How is it determined whether the dependent's parents are usually living in Hong Kong?
- A:
- In determining whether the dependent parents are usually living in Hong Kong, Inland Revenue Department will consider their social and economic relations in Hong Kong, the objective factors referable of which include:
- The number of days staying in Hong Kong
- Whether they have a fixed residence in Hong Kong
- Whether they have property to reside in foreign country
- Whether they have job or business activities in Hong Kong or foreign country
- Whether their relatives are living in Hong Kong or in foreign country
- Q:
- My parents are aged more than 60 and hold Hong Kong ID card, but have removed to mainland, then can I apply for dependent parents allowance?
- A:
- If your dependent parents do not want to continue living in Hong Kong, and only occasionally visit home located in Hong Kong, they will not be deemed to be always living in Hong Kong, which means you will not meet the requirements for application. However, if your parents only once in a while live in mainland, they will be deemed to be always living in Hong Kong, and you can apply for dependent parents allowance in respect of them.
- Q:
- I pay living cost of $30,000 to my mother every year, and intend to apply for "dependent parent allowance", then in which section of the tax declaration form shall I input the amount of living cost?
- A:
- Application for "dependent parent allowance" is subject to your parents' residence, ages and dependence.
If the dependent is always living in Hong Kong, aged 55 or above in this year, and given not less than $12,000 for a whole year, they are entitled to apply for "dependent parent allowance", but need not to inputting the living cost actually paid in the year.
- Q:
- My spouse does not have job, and I pay the living cost of children by myself, then can I apply for "single parent allowance"?
- A:
- You are married, so you are not entitled to "single parent allowance" even if you pay the living cost of children by yourself.
According to Inland Revenue Ordinance, "single parent" refers to taxpayer being single, widowed or separated all the year round, and who raised children solely or mainly by his/herself in that year, and only this kind of parent can obtain "single parent allowance".
- Q:
- What certificates does the applicant need to present in reviewing the application for disabled dependent allowance?
- A:
- In reviewing the application, Inland Revenue Department may require the applicant to present proof showing that the dependent is qualified to apply for government's disability allowance. If the dependent has applied to Social Welfare Department for disability allowance, taxpayer can provide the file number of application for allowance to hereby certify. But if the dependent has no claim for the allowance under governmental disability allowance scheme, Inland Revenue Department will require the taxpayer to present a copy of medical appraisal report signed by public hospital or certified doctor, according to the disability defined under Comprehensive Social Security Assistance Scheme or Social Security Allowance Scheme, to certify that the dependent is qualified to place a claim for disability allowance with the Government, in respect of his/her disability. And Inland Revenue Department can also accept this medical appraisal report as the proof of qualification for disabled dependent allowance.
- Q:
- Does foreign national employed in Hong Kong need to pay Salaries Tax on salary obtained in Hong Kong?
- A:
- Foreign national needs to pay Salaries Tax on its salary received during the employment in Hong Kong, but the following conditions can exempt the foreign national from Salaries Tax:
- Consecutively or accumulatively staying in Hong Kong not more than 183 days during one tax period
- This remuneration is not paid by Hong Kong employer or its representative
- This remuneration is not borne by enterprise set up in Hong Kong by foreign employer
FAQs of Profits Tax
- Q:
- What tax does Hong Kong company need to pay every year?
- A:
- Hong Kong companies are only required to pay profits tax annually. The profits tax rate for the first $2 million of the corporations’ profits is 8.25% and profits above that amount will continue to be subject to the tax rate of 16.5%; for unincorporated corporations in sole proprietorship or partnership, the two-tiered profits tax rate is 7.5% and 15%. If the company is not profitable, there is no need to pay profits tax.
- Q:
- What is the year end of Hong Kong company?
- A:
- It is generally 31 March to 31 December of each year for the basis period of taxation according to custom. Hong Kong company has maximum 18 months for the first year's basis period of taxation.
- Q:
- Does Hong Kong need to levy tariffs on imported/exported commodities?
- A:
- Generally imported/exported commodities need not be levied tariffs, except tobacco, liquor and petroleum. But import/export commodities must be declared at customs.
- Q:
- How is the accounting year (base period of assessment) determined?
- A:
- The base period of assessment shall be one of the following periods:
- The year ended on 31 March or 31 December commonly
- The year ended by the end of other month as permitted
- Q:
- What restriction will Inland Revenue Ordinance have on deduction for donation?
- A:
- Donation granted to recognizable charitable organisation is permitted to be deducted, but total donation as required shall not be less than $100 and not more than 35% of assessable profits.
- Q:
- Can the profits of a Hong Kong company offset the losses of previous year?
- A:
- Losses incurred in a taxable year can be carried forward and used to offset the profits of the company in subsequent years.
- Q:
- What is Provisional Profits Tax payable?
- A:
- Profits Tax shall be levied according to the actual profits of the taxable year. Since the profits of one year shall be determined only after the end of year, Inland Revenue Department will levy provisional tax before the end of that year. After the profits of relevant year are assessed in the following year, the provisional tax already paid can be deducted from the Profits Tax payable of this year.
- Q:
- In which case will Hong Kong company be free from Profits Tax?
- A:
- If the corporate profits do not arise from Hong Kong, and the company has not set up an office in Hong Kong nor hired Hong Kong employees, then its earned profits will be exempt from Profits Tax.
- Q:
- My Hong Kong company only opens account at bank, to collect and pay bills for other China Company, then does this Hong Kong company need to process accounting, auditing and tax declaration?
- A:
- Yes. Because company incorporation is profit-oriented, even if the company in Hong Kong only performs the role of collecting and paying for others, it shall be deemed as agency service business, and its income shall be the commission for collection and payment for others.
- Q:
- My Company only opens an account at a foreign bank in China and does not open account in Hong Kong; shall the business conducted by my company be free from tax declaration?
- A:
- No. According to Hong Kong laws, all Hong Kong company has the obligation to declare its financial condition to Inland Revenue Department, whether its business takes place in Hong Kong or not. If this company does not have its source of income in Hong Kong, it can apply to Inland Revenue Department for exemption from taxation.
