Hong Kong's international business status today is inseparable from its flexible and simple tax system. Especially after the full implementation of the CRS agreement and the gradual formation of the international "anti-dumping" environment, other traditional offshore financial centers have been included in the restricted list of developed countries. However, Hong Kong has avoided sanctions by virtue of its strict industrial, commercial and tax management systems. In accordance with the Hong Kong Company Management Ordinance and the Tax Administration Ordinance, the Hong Kong Inland Revenue Department (HKIRD) will issue a profits tax return to every commercial company registered and operating in Hong Kong (whether it is a Hong Kong company or not), and require the company that receives the profits tax return to comply with the regulations. Within the time limit, the company should submit the completed profits tax form and the audit report for the corresponding financial year to the Hong Kong Inland Revenue Department, so that the HKIRD can calculate the tax payable by the company and issue a tax payment notice.
The process of Hong Kong company tax declaration and tax payment
1. Tax declaration
The starting point for the tax declaration of Hong Kong companies is the issuance of tax returns by the HKIRD to the Hong Kong companies. When the Hong Kong company receives the tax return, the staff needs to fill in the tax return truthfully according to the company's actual business situation in the corresponding financial year. In order to prove that the completed tax declaration form is accurate (it also shows that the tax calculation by the HKIRD is not absolutely subject to the tax declaration form), the audit report for the corresponding financial year must also be submitted to the HKIRD.
After the HKIRD receives the tax declaration information, it will be transferred to the tax assessment team in a timely manner, and the tax assessment team will conduct a detailed tax calculation based on the company's audit report and the average profits of other companies in the industry. When the tax assessment team has calculated the tax payable by the company, it will issue an assessment letter containing the tax payable to the company. After receiving the tax assessment letter, the Hong Kong company also needs to pay the tax payable to the HKIRD within the specified time.
2. Tax payment
1. Profit tax payment
Due to the implementation of the prepayment tax system in Hong Kong, it is necessary to pay the prepayment tax for the next year based on the tax amount of the current year after the tax payable in the current year is calculated.
For example, a Hong Kong company should pay 10,000 Hong Kong dollars (HKD) in tax in the current year, and the Hong Kong company pays the tax for the first time, then the Hong Kong company needs to pay the current tax of 10,000 HKD + the prepaid tax of 10,000 HKD to the HKIRD, i.e. a total of 20,000 HKD tax. From the second year onwards, the tax payable by the Hong Kong company can be deducted from the withholding tax.
(The profit tax rate of the first 2 million profits is 8.25%, and the excess profit tax rate is 16.5%) The 2021/22 full year profit tax rate is reduced by 100%, with a ceiling of HK$10,000;
2. Deduction of loss and profit
If the Hong Kong company does not make a profit during the taxable year, but instead loses HK$10,000, then the Hong Kong company does not have to pay tax to the HKIRD. The company's losses can be deducted from the next fiscal year's profits, resulting in a significant drop in tax payable.
