Hong Kong Profit Tax Return Guide

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On April 1, 2022, the Hong Kong Inland Revenue Department (HKIRD) issued about 220,000 profits tax returns and 300,000 employer’s returns to the businesses for the year of assessment 2021-22.

Company directors are always scared of receiving such a “green bomb” because it would mean a lot of administrative work dealing with auditors, tax calculating, filing and of course, tax-paying…

Here we’ve prepared the practical answers to the frequently asked questions about Profit Tax Return filing and hope they help relieve your worries.

Table of Contents

What is a Profit Tax Return?

The HKIRD issues the Profits Tax Returns on the 1st of April each year to companies for reporting their assessable profits/adjusted loss and profits tax (re)payable for a year of assessment.

The new incorporations will generally receive their first profits tax return around 18 months after incorporation.

When does the Company need to file the Profit Tax Return? 

The HKIRD allows the Company to file the Profit Tax Return about eight months after its year-end accounting date, and the exact schedule is shown  below:-

Accounting Year Ended Extended Filing Date
1 April to 30 November 2 May
1 December to 31 December 15 August
1 January to 31 March 15 November

What information is required to fill in the Profit Tax Return?

You will see how complex the Profit Tax Return is by reading this Sample Profit Tax Return.

The profits tax return must be completed fully and adequately, including detailed financial data like the revenue, gross profit, employee remuneration, net profit/loss, accounts receivable/payables, etc.

Most importantly, all the information you fill in must align with the audited financial statements.

That’s why 99% of the companies will engage their auditors to help with completing and filing the profit tax return.

What does a Company need to file with the Profit Tax Return? 

The company is required to submit the following documents to the IRD for a proper profits tax filing:

  1. Original duly signed Profits Tax Return;
  2. Tax computation with supporting schedules showing how the number of Assessable Profits (or Adjusted Loss) has been arrived at; and
  3. Audited financial statements, including an auditor’s report required by Hong Kong, balance sheet, profit and loss account for the relevant period.
  4. other documents and information specified in the Notes and Instructions.

What happens after the Profit Tax Return submission?

Tax Assessment

Generally, the HKIRD will finish the tax assessment and return with the tax demand note for the tax payment one to six months after the return submission.

The tax assessment will show you the final tax payable for the current year and provisional tax for the subsequent year with the detailed computation behind it.

The company is required to settle the tax payable by installment before the due date.

Provisional Tax Payment

The HKIRD will request the provisional tax payment based on the current year’s profit.

E.g. If the company earned US$10,000 in 2021/22, the HKIRD would presume the same level of making for 2022/23 and ask for the tax PREPAYMENT based on it in the profit tax assessment of 2021/22.

Holding Over of Provisional Tax

The company may apply in writing for holding over some or all of the provisional tax in the following circumstances:-

  1. The net chargeable income for the subsequent year of assessment is, or is likely to be, less than 90% of the net chargeable income for the previous year, or less than 90% of the estimated sum on which the HKIRD charged provisional tax or
  2. The company ceased or will cease to earn income subject to the profit tax before the next tax year.

Objection

If you wish to object to the tax assessment, you can give the written notice to HKIRD with grounds within one month after the notice of assessment. (e.g. wrong calculation, missing information, etc.)

What will happen if the Company fails to file the Profit Tax Return on time?

Penalty! Extra tax! Court summons!

Late filing of Profit Tax Return may lead to severe consequences. The failure to file a valid Profits Tax Return to the IRD by a specified deadline without reasonable excuse will potentially result in a compound penalty of a maximum of HK$10,000, issuance of estimated tax assessments by the HKIRD, a liability in the form of additional tax under Section 82A of the Inland Revenue Ordinance and court summons.

Court summons hammer

Does the Company need to file the Profit Tax Return if all its profits come outside Hong Kong?

Yes. All the companies must report their financial data to the HKIRD via the profit tax return filing.

You may have further study here about the special arrangements for an offshore claim.

What are the tax rates for Hong Kong companies?

Hong Kong Tax company tax rates

Conclusion

Filing the Profit Tax Return on time is essential to all companies. Luckily, the preparation time of the filing is relevantly relaxed for Hong Kong private companies, while there are about 8 months between the accounting year end date to the filing deadline. Talk to your qualified CPA to kick start filing your Profit Tax Return asap~

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  • Tax advisory
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