Corporate Profit Tax Return Filing

Normally, companies must return the form to the tax office within 1 month from the date of issue of the return.

However, companies that file tax returns for the first time can enjoy a longer period of time. The Inland Revenue Department will voluntarily give new companies an additional 2 months, that is, a total of 3 months to complete the return and submit it, but it is not allowed to apply for an extension again.

If the company has not made any profit, or has made a loss, it is not required to file a Profits Tax Return. However, as soon as a company starts earning assessable profits again, it is required to notify the Inland Revenue Department in writing within 4 months after the end of the year of assessment, or risk a penalty.

In addition, if the company suffered losses in the last tax filing year, the Inland Revenue Department may not issue a profit tax return in the following year, but the company is responsible for keeping records of income and expenses for each financial year. The tax returns must be filled out truthfully and submitted to the Inland Revenue Department on time within 1 month from the date of issuance.

Auditing Requirement
The Companies Ordinance stipulates that any company established in Hong Kong, regardless of its size, must prepare an annual audit report as a supporting document for tax returns, commonly known as “audit”.

Simply put, an audit is the review and verification of a company’s profit and loss statement, balance sheet, trial balance and general ledger to ensure that the information is accurate and reliable. The company can be handled by an internal auditor, or it can be entrusted to a third-party audit firm.

If the company’s total turnover in the relevant year of assessment is less than HK$2,000,000, it is not required to submit an audit certificate at the time of tax return, but the company must retain the relevant information for submission by the assessor in the future.

Corporate Tax Calculation
Under the two-tiered profits tax rates regime, the profits tax rate for the first $2 million of assessable profits will be lowered to 8.25% for corporations and 7.5% (half of the standard rate) for unincorporated businesses (mostly partnerships and sole proprietorships). Assessable profits above $2 million will continue to be subject to the rate of 16.5% for corporations and standard rate of 15% for unincorporated businesses.

Tax Deductible Expenses
Pursuant to Section 16 of the Inland Revenue Ordinance, any expenditure incurred in generating taxable profits is eligible for tax deduction. Common expenses that can be deducted include:

• Incoming cost
• Office, warehouse or shop rent
• Salaries, allowances, severance and long service payments of employees
• Employee’s MPF Contributions
• entertainment fee
• Business-related insurance premiums, such as labor insurance, company group medical insurance
• Maintenance costs related to the working environment
• Other special deductible expenses include:
  • Building renovation expenses
  • Computer hardware and software acquisition expenses
  • Expenditures on the purchase of environmental protection facilities, such as electric vehicles, food waste machines, etc.

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