Profits Tax - Deemed
assessable profits
Section 14 of Inland Revenue Ordinance sets out
the basic charge to profits tax. In addition, Section 15 deems the following
to be taxable trading receipts in case Section 14 cannot bring the receipts to
chargeable profits of a non-resident person / company. A
non-resident is not generally chargeable to profits tax if he does not
have a permanent establishment (i.e. fixed place of business) in Hong Kong.
|
(1)
|
Money received or
receivable from the exhibition or use in Hong Kong of cinematography or
television film or tape, any sound recording or any advertising materials
connected with such film, tape, or recording
[Section 15(1)(a)]. |
|
(2)
|
Money received or
receivable for the use or right to use in Hong Kong a patent, design,
trademark, copyright material or secret process or formula or other of a
similar nature [Section 15(1)(b)].
|
|
(3)
|
Money received or
receivable for the use or right to use outside Hong Kong a patent, design,
trademark, copyright material or secret process or formula or other of a
similar nature
if the payment for such are deductible under profits tax.
[Section
15(1)(ba)].
This provision is to counteract the tax avoidance schemes
following the decision of Emerson case. |
|
(4)
|
Money received or
receivable by or accrued to a person carrying on business in Hong Kong by
way of grant, subsidy or similar financial assistance other than sums in
connection with capital expenditure [Section
15(1)(c)]. |
|
(5)
|
Money received or
receivable by way of hire, rental or similar charges for the use of
movable property or the right to use movable property in Hong Kong
[Section 15(1)(d)]. |
The deeming
provisions of Section 15(1)(a), Section 15(1)(b) and Section 15(1)(b)(a) apply only where the
transactions cannot be caught by the basic charge. In other words, they will
not apply to those transactions that have already been assessable under
Section 14. In general, they apply to non-residents who do not carry on a
business in Hong Kong. Payments assessable includes lump sum payments
or periodical payments. The assessable profits under these provisions
are deemed to be 30% of the payment if the parties concerned are not related.
If they are related (e.g. they are holding and subsidiary companies), then
100% of the payments are deemed to be the assessable profits of the
non-resident company involved.
The
deeming provisions of Section 15(1)(c) and Section 15(1)(d) do not stipulate
an assessable-profits rate. In other words, the actual net amounts received or
receivable will be taken into the assessable profits. The deeming provision of
Section 15(1)(c) concerns only those persons carrying on a trade or business
in Hong Kong. However, the deeming provision of Section 15(1)(d) targets those
persons who do not carry on a trade or business in Hong Kong.
|
