Profits Tax - Corporation (limited company)
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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
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
a tax computation showing how the
Assessable Profits are computed from the accounting profits;
schedules of the following items
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
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
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
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).
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.