Since April last year, Hong Kong enterprises are required to submit the corresponding audit report at the same time after receiving the profits tax return, and the Inland Revenue Department (IRD) will no longer accept submissions with no actual income (commonly known as "zero declaration").
For newly registered companies, the tax filing time is 3 months. From the second fiscal year, there are three deadlines: April 30, August 15 and November 15.
Note: The specific extension application dates are as follows, depending on the type of tax return.
1. Overview of Hong Kong Profits Tax
Profits tax is the main tax in Hong Kong's tax system. This tax is levied on the basis of the "territorial source principle", i.e. only profits arising in or derived from operations in Hong Kong are subject to profits tax. Conversely, profits derived from sources outside Hong Kong are generally not subject to tax.
Two-tiered rates of profits tax
Hong Kong currently has a two-tiered tax rate structure, which applies to limited companies and unlimited companies (sole proprietorships and partnerships).
Ltd:
For the first 2 million Hong Kong dollars, the tax rate is 8.25%;
Profits in excess of HK$2 million are taxed at 16.5%.
Unlimited Company (Sole Proprietorship or Partnership):
For the first 2 million Hong Kong dollars, the tax rate is 7.5%;
Profits in excess of HK$2,000,000 are taxed at 15%.
Profits Tax Relief:
In the 2024 Budget, the Hong Kong government announced a profits tax reduction for the year of assessment 2023/24, but with a maximum limit of HK$3,000.
2. Overview of the issuance of profits tax returns
The timing of the issuance of the Hong Kong company's profits tax return depends on the company's business status, and there are three main scenarios:
1. Newly registered company: The first profit tax return will be received about 18 months after the establishment of the new company.
2. Companies in continuous operation: For companies that are already in continuous operation, the Profits Tax return will be issued in bulk on the first working day of April each year.
3. Companies under certain circumstances: The Inland Revenue Department (IRD) will not normally require the company to file an annual profits tax return if it has not commenced business, has ceased business and has not reopened, or has not generated chargeable profits in the year in which the business is conducted. If the Inland Revenue Department (IRD) still issues profits tax returns to these companies when reviewing the potential tax liabilities of taxpayers, taxpayers are required to complete the tax returns in accordance with the requirements.
Profits Tax Form Form
3. Correlation between the Profits Tax Return and the Auditor's Report
For Hong Kong companies, there are several situations to be aware of in the declaration and audit report of profits tax:
1. Companies that conduct regular audits:
The operations of these companies will not be affected. They only need to ensure that the audit report is completed regularly every year and submitted to the tax office within the stipulated deadline.
2. Companies that have zero declarations but are in business in the past:
For such companies, the impact is greater. If the Profits Tax Return is received this year, it must be audited, including completing the missing annual audit report in the past, and submitting it to the Inland Revenue Department to complete the tax return.
3. Companies that do not actually operate:
1) Long-term non-operation:
If the company has not had any business activities since its inception and does not plan to commence operations in the future, it can submit a declaration of "dormant company" to the Hong Kong Companies Registry. Once it is considered a dormant company, it can apply to the tax office for exemption from bookkeeping, auditing and tax obligations. However, please note that at this time the company cannot carry out any business activities, such as investment, signing contracts, etc., and will be marked as dormant in the Companies Registry.
2) If the operation is temporarily closed but the resumption is planned:
For companies that plan to resume operations at some point in the future, they need to appoint a licensed accountant to prepare an "audit report of no operating activities". After that, this report is submitted to the Inland Revenue Department along with the Profits Tax Return.
Fourth, the list of audit materials of Hong Kong companies in normal operation
1. Basic information of the company
If it is the first time to conduct an audit, provide the Certificate of Incorporation, Business Registration Certificate, NNC1, Articles of Association.
If it is not the first audit, provide the business registration certificate of the previous year, NAR1, articles of association, and change documents (if any).
If you are going to make up the previous year for audit, provide all company documents from the date of incorporation to the present, including the Certificate of Incorporation, Business Registration Certificate, NNC1, Articles of Association, NAR1, change documents, etc.
2. Bank slips
Bank statement.
Every receipt and payment advice, deposit slip or cheque slip relating to incoming and disbursing is on all monthly statements, including the monthly statements for the first 1-2 months of the year following which the accounts are made.
3. Bills
Purchase and sale part
Sales Section: Provide all sales invoices and contracts issued by the company.
Procurement Section: Provide all purchase invoices and contracts issued by the company.
Fee section
Provide receipts or invoices for various expenses, such as office expenses, telephone bills, freight charges, courier fees, travel expenses, transportation expenses, communication expenses, advertising expenses, etc.
For payroll expenses, the employee payroll contract, the employee's receipt slip, and the employee's ID card are required. Note: Hong Kong's tax policy includes salaries tax, and personal income tax is exempted when the annual salary does not exceed HK$132,000.
Rental expenses, providing rental contracts or agreements, receipts or invoices.
fixed asset
Provide invoices or receipts at the time of purchase, such as office equipment, cars, real estate, etc.
Investment-related documents
4. Financial statements for the current period
5. Audit process
Proactive audit (no tax returns received)
Conduct an audit upon receipt of the Profits Tax Return
When receiving the profits tax statement, the accounting expert should be quickly arranged to carry out the accounting and declaration work. Doing so can help keep your business tax compliant and avoid potential late payment penalties.