Hong Kong Fact-File Part 2: Hong Kong Individual Business Domestic Taxation

2.7 Hong Kong Limited Companies Income Taxation

Limited companies are liable to profits tax of 16.5% on profits arising in Hong Kong. The tax year runs from 1 April to 31 March. A tax assessment based on the previous year’s profit is payable in two instalments, the first being 75% (due by the third quarter of the year) and three months later, the final 25%.

Once profits for the year are finalised, differences between the sums paid on assessment and actual will be added to or deducted from the following year’s assessment.

Allowable deductions from profits tax are all expenses incurred in the running of the business to produce chargeable profits, such as heating, lighting, rent, salaries and mandatory provident fund contributions for employees (up to a maximum of HKD12,000 per annum). Furthermore, charitable donations of not less than HKD100 but not totalling more than 35% of the assessed profits before the deduction are included in allowable deductions.

Non-deductible items include domestic or private expenses, loss or withdrawal of capital and contributions made to a mandatory provident scheme in respect of the proprietor and his/her spouse and partner and their spouses in the case of a partnership.

Regarding expenses incurred by incorporated entities in the construction of industrial buildings, 20% of the expenses are deductible in the first year and 4% annually thereafter, until the costs in question have been fully written-off. For commercial buildings, there is no initial allowance, and the expenses should be deducted on a 4% straight line basis annually.

Expenditure on manufacturing-related plant and machinery, and computer hardware and software may be written off in the year of purchase. For other types of plant-related expenditure, the initial allowance is 60% in the year that the expense is incurred, with the remaining declining balance depreciated at either 10%, 20%, or 30%, as stipulated by the Inland Revenue.