Hong Kong Profits Tax Services
Hong Kong profits tax is payable by every corporate entity carrying on a trade, profession or business in Hong Kong. Taxable are only profits arising in or derived from Hong Kong from these trade, profession or business activities. So called “offshore profits”, which are mainly foreign (non Hong Kong) sourced profits are generally not taxable as these are beyond the territorial scope of the Hong Kong tax system and are not subject to Hong Kong profits tax.
In Hong Kong the Inland Revenue Department (IRD) issues corporate entities with a tax return for the first anticipated year of assessment. If no such tax return has been issued by the Inland Revenue Department (IRD), corporate entities have the duty to notify the Inland Revenue Department (IRD) if any profits have arisen by carrying on a trade, profession or business in Hong Kong. A year of assessment runs each year from April, 1st to March, 31st. Corporate entities are free to determine their year of assessment in their discretion. However, the month in which the accounting period ends determines the deadline by which the corporate entity has to file the tax return and financial statements for each year of assessment.
Every corporate entity should be able to see its filing date for Hong Kong profits tax purposes from the following:
Financial year ended: Between January, 1st and March, 31st
Hong Kong profits tax filing due date: November, 15th of the calendar year in which the financial year ended
Financial year ended: Between April, 1st and November, 30th
Hong Kong profits tax filing due date: May, 2nd of the calendar year following which the financial year ended
Financial year ended: Between December, 1st and December, 31st
Hong Kong profits tax filing due date: August, 15th of the calendar year following which the financial year ended
The tax legislation of Hong Kong requires various amendments to be made to the accounting profit in order to determine the taxable profit according to the Hong Kong profits tax. These are normally shown in a separate tax computation which is filed together with the tax return. In Hong Kong capital gains, “offshore profits”, interest from bank deposits and dividends are generally not subject to Hong Kong profits tax and must therefore be deducted from the general accounting profit. Acquisition costs for some intellectual property rights can also be deductible for Hong Kong profits tax purposes. Losses however cannot be offset against the profits of other group companies. Problems can arise from interest paid to overseas group companies as these are only deductible if the Hong Kong corporate entity is regarded to be in intra-group financing operations and certain conditions are met. Generally, assessable profits of corporate entities are according to Hong Kong profits tax taxed at the corporate tax rate of 16.5%. In contrast, profits of a qualifying Corporate Treasury Centre are taxed at half of the corporate tax rate, thus at 8.25%.
The Hong Kong tax system does not charge withholding tax on dividends and interest, however Hong Kong taxes corporate royalties paid to overseas entities for the exploitation of intellectual property (IP) rights. According to the Hong Kong profits tax, these are normally taxed at a rate of 4.95% of the royalties payments but a reduced rate may be applied if a comprehensive double tax agreement / arrangement (CDTA) between Hong Kong and the overseas jurisdiction exists, is ratified and in force. Also does Hong Kong tax profits of non-resident entities who use Hong Kong based consignment agents to sell their goods. In such cases the Inland Revenue Department (IRD) will charge 0.5% of the gross sales proceeds. Even though Hong Kong normally does not levy any withholding taxes, these two examples show that there are measures in force that have the same outcome as withholding taxes and expert advise is needed on Hong Kong profits tax and rendered Hong Kong profits tax services.
Hong Kong has so far entered into comprehensive double tax agreement / arrangement (CDTA) with a number of jurisdictions around the world, among others with Austria, Belgium, Canada, Czech Republic, France, Indonesia, Ireland, Italy, Japan, Latvia, Liechtenstein, Luxembourg, Malaysia, Malta, Mexico, the Netherlands, New Zealand, the People’s Republic of China (PRC), Portugal, Romania, Russia, South Africa, Spain, Switzerland, Thailand, the United Arab Emirates, and the United Kingdom (UK). Hong Kong is negotiating with a number of other jurisdiction in this regard, for instance with Germany. It is highly likely that Hong Kong and Germany will conclude on a comprehensive double tax agreement / arrangement (CDTA) in the near future.
At Mühler McKay our Hong Kong profits tax services generally include:
- Hong Kong profits tax services – tax efficient structuring of your business operation
We can help you with structuring your entire business or operations in a tax efficient manner, especially in regard to Hong Kong profits tax. By this your overall tax liability is minimised may it be at entity level or at group level. Also, we advise you for tax efficient project structuring and advise on a tax efficient exit strategy order to maximise your profits.
- Hong Kong profits tax services – tax efficient Intellectual Property structures
The security of your Intellectual Property is extremely important for your business success, however, with the careful and intelligent structuring of your intangible assets, your business can further maximise profits and outperform the competition.
- Dealing with different jurisdictions and their unique tax regulations
We are experienced in dealing with different jurisdictions and their unique tax regulations.
- Hong Kong profits tax services – cross-border transactions
We provide tax structuring advise to develop appropriate tax strategies to cross-border transactions. We particularly assist you in setting up overseas operations or joint ventures and advise on tax structuring in regard of entering into, or exiting from, a foreign market.
- Advice on controlled foreign companies (CFC) rules
We can assist you with structuring your business and group of companies, to avoid negative implications from international controlled foreign companies (CFC) rules.
- Hong Kong profits tax services – transfer pricing
We assess the situation in detail and will work out a strategy for a tax efficient structure will give your business a better position among your competitors.
- Hong Kong profits tax services – employee plans
We can assist your business with advise in regard of incentive compensation in the form of equity-based packages, which can help your business grow and keep the workforce happy. There are plenty of options for businesses, like stock options, employee profit sharing plans, etc, which are hard to oversee. It is important to carefully consider which plan suits your needs best and how to implement it, so that no negative implications arise.
- Bookkeeping and maintaining of accounting records to help with Hong Kong profits tax
Simply pass all your invoices and other accounting materials to us, and we will prepare the required accounting books and records for you and your business, which record the Hong Kong Limited Company entries from day to day.
- Periodic management reporting on monthly, quarterly or yearly basis
We can also help you with the preparation of accurate monthly, quarterly or yearly financial statements including balance sheet and income statement.
- Preparing consolidation and group reporting according to Hong Kong profits tax needs
As of HKIFRS 10 some entities need to prepare consolidated accounts. We can take care of your accounting consolidation needs as well as your group reporting.
- Preparation and filing of Hong Kong profits tax returns
We can prepare your Hong Kong profits tax returns and can file them on your behalf and for your Hong Kong Limited Company.
- Arranging audit schedules
Every Hong Kong Limited Company needs to prepare and file audited accounts, drawn up by a Hong Kong Certified Public Accountant (CPA). Mühler McKay can arrange audit for your business.
- Liaising with external auditors and annual audit schedules
We have long relationships with Hong Kong CPA firms and are able to liaise with the CPA on your behalf so that the audit requires less of your attention.
- Supporting services
Mühler McKay also provides supporting services for business operations such as assistance with incorporation services / company formation services, advising on tax efficient legal structures for (groups of) companies (corporations, for instance a Hong Kong Limited Company, partnerships, branches, representative offices), bookkeeping and accounting (according to Hong Kong principles) as well as audit arrangement, general corporate compliance like provision of company secretary services (in Hong Kong) as well as providing a registered address or virtual office in Hong Kong, obtaining obligatory registrations, permits and licenses, as well as employment advice, including Hong Kong work visa application and general international and Hong Kong profits tax services and general information on the Hong Kong profits tax.
Our Hong Kong profits tax services also cover Family and Legacy Planning and Philanthropic Structures for families, business owners, entrepreneurs and private individuals.
Mühler McKay offers comprehensive Hong Kong profits tax services which include arranging businesses and operations in a tax efficient manner in order to bring down your effective global tax rate, satisfy international tax compliance obligations and mitigate taxation risks.
Please contact us or visit us in Hong Kong for your first consultation for our Hong Kong profits tax services or if you have questions in regard of the Hong Kong profits tax.
Mühler McKay based in Hong Kong is a business advisory firm with worldwide reach and renders, among others, Hong Kong profits tax services to a diversified international client base from various industries and sizes.