Profits Tax - Corporation (limited company)

First, please read tax tips: business registration keep business records 有限公司

Section 51C of Inland Revenue Ordinance requires every business to keep sufficient business records. Click here for details

Section 2 of Inland Revenue Ordinance: a corporation is any company incorporated or registered under any enactment or charter in Hong Kong or elsewhere. For tax purpose, the terms "limited company" and "corporation" have the same meaning.

The question of whether the corporation is a resident or a non-resident of Hong Kong does not normally affect its profits tax liability --- although there are special provisions applicable to non-residents concerning collection of tax.

A corporation carrying on a business in Hong Kong has to file a tax return BIR 51 for every year of assessment. The tax return must be supported by the following:

a certified copy of audited Balance Sheet and Profit and Loss Account and Director Report;
a certified copy of Auditor Report;
a tax computation showing how the Assessable Profits are computed from the accounting profits;
schedules of the following items (where applicable):

capital expenditure incurred, capital assets sold, depreciation charged in the accounts and assets not in use at the end of the basis period;

details of expenditure incurred on, and disposal proceeds of, scientific research;

details of expenditure incurred on refurbishment of buildings --- the location and the usage of building during the year;

details of reserves and provisions, showing transfers to and from the related accounts;

details of extraordinary gains and losses;

details of any service / management fee received including name and address of each payer,

details of interest paid or payable, including name and address of the lender, any security to the lender, and the usage of the loan;

details of income claimed to be with a non-Hong Kong source;

details showing the name and address of payments involving contractor / sub-contractor fees, management fees, commission, royalties, legal and other professional fees, and hiring charges for the use of a movable property in Hong Kong;

details of bad debt provisions and write-offs;

details of change in method of valuation of stock; and

details of rent payments including name and address of the landlord, the property location, the total rent paid and the period covered.

The Inland Revenue Ordinance does not requires the corporation's accounts to be audited. Rather, it is the Companies Ordinance that makes the requirement. So, if the corporation is registered in a country without audit requirement, the Revenue may accept unaudited accounts providing they are certified by the directors. Besides, a Hong Kong limited company may be exempt from audit under the Companies Ordinance --- for example it is a dormant company. In that case, the Revenue will also accept unaudited accounts.

Tax payable by a corporation = Assessable profits * Corporation rate 16.5% (from 2008/09 onward).

The corporation's share of profits from a partnership is also taxed at corporation rate of 16.5% although profits attributable to other individual partners taxed at 15% (from 2008/09 onward).

Company in liquidation: In general, the IRD does not insist on audited accounts if the accounts are signed by a responsible person (e.g. the liquidator). However, audited accounts will be required if they are available.