The Scope of the Charge 

Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. There is therefore no distinction made between residents and non-residents. A resident may therefore derive profits from abroad without suffering tax; conversely, a non-resident may suffer tax on profits arising in Hong Kong.

The question of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong is largely one of fact, however some guidance on the principles applied can be found in cases which have been considered by the Hong Kong Courts and the Privy Council. No tax is levied on profits arising abroad, even if they are remitted to Hong Kong.

If a person sells his flat or any property as part of a scheme of profit-making, it will be regarded as a business and he is required to pay tax on any profit he may make.

Assessable Profits 

The Assessable Profits (or Adjusted Loss) are the net profits (or loss) [other than profits (or loss) arising from the sale of capital assets] for the basis period, arising in or derived from Hong Kong, calculated in accordance with the provisions of Part IV of the I.R.O.

Basis Period 

The Basis period is either:-

1. the year ended 31 March during the relevant year;
2. where the annual accounts are made up to any day other than 31 March, the year ended on that day in the relevant year;
3. where the accounts are made up for each lunar year, the lunar year ended in the relevant year;

Deductions 

Deductible Expenses

Generally, all outgoings and expenses, to the extent to which they have been incurred by the taxpayer in the production of chargeable profits, are allowed as deductions. Reference can be made to section 16 of the I.R.O.

A transfer of certain allowable head office administrative expenses by means of a charge to a local branch or subsidiary in Hong Kong would be allowed as a deduction for Hong Kong tax purposes, to the extent to which they were incurred during the basis period for the year of assessment in the production of profits chargeable to tax.

Non-deductible Items

In computing the assessable profits deduction is specifically prohibited in respect of the following:-

domestic or private expenses and any sums not expended for the purpose of producing the profits;

any loss or withdrawal of capital, the cost of improvements and any expenditure of a capital nature;

any sum recoverable under insurance or contract of indemnity;

rent of or expenses relating to premises not occupied or used for the purpose of producing the profits;

taxes payable under the I.R.O., except Salaries Tax paid in respect of employees' remuneration;

any remuneration or interest on capital or loans payable to or, subject to section 16AA, contribution made to a mandatory provident fund scheme in respect of the proprietor or the proprietor's spouse or, in case of a partnership, to its partners or their spouses.

Deductions 

Deductible Expenses

Generally, all outgoings and expenses, to the extent to which they have been incurred by the taxpayer in the production of chargeable profits, are allowed as deductions. Reference can be made to section 16 of the I.R.O.

A transfer of certain allowable head office administrative expenses by means of a charge to a local branch or subsidiary in Hong Kong would be allowed as a deduction for Hong Kong tax purposes, to the extent to which they were incurred during the basis period for the year of assessment in the production of profits chargeable to tax.

Expenditure on Building Refurbishment

A person who incurs capital expenditure on the renovation or refurbishment of business premises is allowed to deduct that expenditure over a period of 5 years in equal instalments commencing in the year in which the expenditure is made.

Expenditure on plant and machinery specially related to manufacturing, and on computer hardware and software

For this kind of expenditure, a full deduction is allowed in the basis period in which the expenditure was incurred.

Expenditure on Environmental Protection Facilities 

1. Expenditure on environmental protection machinery

• With effect from the year of assessment 2008/09, a full deduction is allowed during the basis period in which the expenditure is incurred.

2. Expenditure on environmental protection installation

• With effect from the year of assessment 2008/09, a deduction at 20% of the expenditure is allowed in each of the 5 consecutive years commencing from the year in which the expenditure is incurred.

3. Expenditure on environment-friendly vehicle

• With effect from the year of assessment 2010/11, a full deduction is allowed during the basis period in which the expenditure is incurred..

Depreciation Allowances

1. Industrial Buildings Allowances on Industrial Buildings and Structure

• Initial allowance: 20% on the cost of construction of the premises
• Annual allowance: 4% on the cost of construction of the premises
• Balancing allowance or charge will be due upon disposal of the premises

2. Commercial Buildings Allowances on Commercial Buildings and Structures

• Annual allowance: 4% on the cost of construction of the premises
• Balancing allowance or charge will be due upon disposal of the premises

3. Plant and Machinery

• Initial allowance: 60% on the cost
• Annual allowance: at rates of 10%, 20% or 30% as prescribed by the Board of Inland Revenue in the Inland Revenue Rules, on the reducing value of the asset. Items qualifying for the same rate of annual allowance are grouped under one "pool".
• A balancing allowance is available only on cessation of a business to which there is no successor. A balancing charge can, however, arise whenever the disposal proceeds of one or more assets exceed the reducing value of the whole "pool" of assets to which the disposed items belong.

Donations

Charitable donations made to approved charitable institutions or trusts of a public character or to the Government of the Hong Kong Special Administrative Region, amounting in aggregate not less than $100 but not exceeding 35% (10% for years of assessment up to and including 2002/03; and 25% for years of assessment 2003/04 to 2007/08) of the adjusted assessable profits before deduction of donations, are allowable for deduction in computing the assessable profits.

Treatment of Losses 

Losses made in an accounting year are to be carried forward and set off against future profits of that trade but a corporation carrying on more than one trade may have losses in one trade offset against profits of the other. For gains or losses which are subject to concessionary tax rate, there are special provisions on the adjustment of losses between concessionary trading activities and normal trading activities. An individual who incurs a trading loss and who claims Personal Assessment will have the loss allowed as a deduction from his total income.

Profits Tax Rate 

Tax Rates Applicable to:   

Corporations:    

    2008/09 onwards:  16.5% 

    2018/19 onwards: 8.25% on assessable profits up to $2,000,000; and 16.5% on any part of assessable profits over $2,000,000

Unincorporated Businesses: 15%

    2008/09 onwards: 15% 

    2018/19 onwards: 7.5% on assessable profits up to $2,000,000; and 15% on any part of assessable profits over $2,000,000

Note

(1) 100% of the 2021/22 profits tax is waived subject to a ceiling of $10,000 per case.

(2) 100% of the 2020/21 profits tax is waived subject to a ceiling of $10,000 per case.

(3) 100% of the 2019/20 profits tax is waived subject to a ceiling of $20,000 per case.

(4) 100% of the 2018/19 profits tax is waived subject to a ceiling of $20,000 per case.

(5) 75% of the 2017/18 profits tax is waived subject to a ceiling of $30,000 per case. 

(6) 75% of the 2016/17 profits tax is waived subject to a ceiling of $20,000 per case. 

(7) 75% of the 2015/16 profits tax is waived subject to a ceiling of $20,000 per case. 

(8) 75% of the 2014/15 profits tax is waived subject to a ceiling of $20,000 per case. 

(9) 75% of the 2013/14 profits tax is waived subject to a ceiling of $10,000 per case. 

(10) 75% of the 2012/13 profits tax is waived subject to a ceiling of $10,000 per case.

Source: Hong Kong Inland Revenue Department www.ird.gov.hk