In Hong Kong, the income tax is the income tax charged to businesses made in Hong Kong. Applying the concept of territorial taxation, only profits derived from Hong Kong are taxed in general. Capital gains are not taxed in Hong Kong, although it is always debatable whether an income is capital in nature.
People who are subject to income taxes include corporations, partnerships, trustees, and sole proprietors.
Video Profits tax in Hong Kong
The scope imposed
As a general rule, the Hong Kong profits tax is levied on any person who trades, professions or businesses in Hong Kong and any estimated benefit arising in or originating from Hong Kong for a one-year assessment. The rate of profit tax applied is 15% for individuals and 16.5% for a company ( a.k.a. Standard rate ) on net income which can be assessed for appraisal year 2014/15.
Maps Profits tax in Hong Kong
Profit source
To debate whether the benefits arising from or derived from Hong Kong, case law considerations are often mentioned. The fundamental source rule is defined by the landmark case of the Inland Revenue Commissioner ("CIR") v. Hang Seng Bank Ltd Co. (1991) 1 AC 306 . Lord Bridge of the Harwich of Privy Council argues that the source of profit is the question of facts depending on the nature of the transaction and states the broad guiding principle in determining its source is that
This statement is widely adopted in the context of Taxation in Hong Kong and other jurisdictions and is reconfirmed in subsequent cases, such as HK-TVB International Limited v. CIR (1992) 2 AC 397. However, when applying broad guiding principles, it should not be distracted by the preceding and incidental.
To reduce the complexity of determining profit sources, the Hong Kong Revenue Revenue Department ("IRD") issues Departmental Interpretations and Notes Practice No. 21 - Profit locality ("DIPN no 21") to provide potential taxpayer guidance on sources of income. Following the guidelines in DIPN no. 21, taxpayers may first determine what kind of profit their business can earn and refer to IRD's views regarding certain types of benefits.
Tax calculation
The formula is:
- Profit tax payable HK = Net assessable profit ÃÆ'â € "The standard rate of tax profit
- Net income to be assessed = measurable gains - Loss posed (if any) Losses transferred from partnership (if applicable)
- Measured profit = Profit or (Loss) per financial account (Unbilled expenses in account - Non-taxable income credited in account) - Depreciation allowance - Approved charitable donation
Approved charity donations
Approved charitable contributions are limited to 10% of the amount after deducting depreciation allowances, per section 16D from IRO. And after the recent amendment, it was changed to 25% of the total after deducting Depreciation allowance
Section 14
- Someone trades, professions, or businesses in Hong Kong
- There are benefits that arise or come from (trade, profession, business). Fortunately not from the sale of capital assets
- Profits must come from or come from Hong Kong
- Test the contract made
- Test operation
- Credit test conditions
- Development test or registration test
Trade Badge
Any trade may be subject to a profit tax unless the reasonable person can provide evidence to prove that there is no income gain. In Hong Kong, capital gains are not taxable.
To prove the nature of trade, trade badges should be considered:
- taxpayers' intentions of earnings (one commodity acquisition)
- Subject matter of commodity disposal (If enjoyment can be assumed on original acquisition, eg rental)
- length of ownership,
- the frequency of similar transactions,
- excuses,
- additional work and so on.
Base period and appraisal year
The year of appraisal each year starts from 1 April and ends on March 31 of the following year. For example, the appraisal year for April 1, 2014 to March 31, 2015 is "2014/15 Review Year". However, no adjustments are required to align financial information with the end date of the assessment. In contrast, IRD receives the earnings assessed according to the date of the end of the accounting year. In the context of tax law, this is also referred to as the base period.
Tax depreciation
The purchase of industrial buildings, commercial buildings and factories and machinery can not be deducted because it is a capital in nature. However, capital expenditures can be deducted if categorized into the following:
- Capital expenditures in factories and machinery for research and development;
- Capital expenditures for renovation or repairs to buildings other than domestic ones;
- Capital expenditure on fixed assets (excluding lease or lease purchase);
- Capital expenditure on environmental protection facilities (excluding lease or lease-purchase).
If capital expenditures can not be deducted in any of the foregoing provisions, the following depreciation allowance may be given as an alternative deduction.
Industrial building allowance and commercial building
As derived from its name, industrial building allowances are only available for buildings used, generally, for the purpose of manufacturing goods and products. Buildings used to run other businesses may be eligible for commercial building allowances.
Industrial building allowances are more beneficial to taxpayers because in the year of purchase, 20% of "initial allowances" on capital expenditures can be reduced. Such benefits are not available for commercial buildings. For every year, 4% of capital expenditures can be reduced as "annual allowances", up to 25 years after first use.
In contrast, the amount received at the time of sale of the claimed benefit will be taxed as "balancing cost".
Depreciation allowance at Plant and Machinery
The type of factory and machine that can be depreciated by taxes and tariffs respectively (only for annual allowances, see below) is set in the schedule specified. The definition of plants and machinery does not include any tools, tools and articles. On the contrary, they can be fully deducted for benefit tax purposes on a replacement basis (ie an initial purchase that is not deductible)
For assets purchased during the appraisal year, an initial allowance of 60% will be provided. Thereafter, assets that share the same annual allowable allowance rate will be transferred to a pool, classified according to the schedule specified in Rule 2 and an annual allowance of 10%, 20% or 30% will be provided for all assets collected. For example, motor vehicles, collected 30%, can be given an initial allowance of 60% and 30% of the annual allowance in the remaining 40% of the asset value. Therefore, 72% (ie 60% 30% x 40% = 72%) of the value of the motor vehicle may be tax deductible in the year of purchase.
Tax loss
Tax loss can be brought forward to set profit in the coming years until it is fully absorbed but not backward. Group loss relief is not available in taxation in Hong Kong.
The taxpayer has no right to file an objection for damages imposed by IRD because the loss is not a valuation in accordance with the Ordinance's definition. Until the time when the earnings are assessed that affects the tax loss (eg compensation of the previous tax loss), the taxpayer may file a request for objection to the CIR. It also implies that the loss statement, which does not provide an objection option to the taxpayer, has a different status with the assessment notification.
Assessment can not be reopened after the final and conclusive after 6 years (or 10 years in case of intentional tax evasion). In contrast, the case of a tax loss, even approved by the CIR in the previous year, may be reopened at any time in the future as it is not technically a judgment.
See also
- Department of Inland Revenue (Hong Kong)
- Part 5 of IRO - Property tax
- Section 8 of IRO - Payroll
Reference link
- Section 14 of IRO
- HK Outback Revenue Department: Questions and Answers
- Different tax rate standards apply to unincorporated corporations and businesses
References
Source of the article : Wikipedia
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