Tax season can be stressful, especially for entrepreneurs who want to steer clear of racking up unintended penalties from filing incorrectly. Fion Ma, director of vOffice, contacted Localiiz to answer seven frequently asked tax questions.
Have you developed your own tax efficiency plan yet? As a first step, we’ve answered seven popular tax-related FAQs among entrepreneurs.
Normally, the Inland Revenue Department (IRD) will issue tax returns on April 1 every year and it is required for you to complete the tax filing within one month from the date of issue; otherwise, you may face penalties or even prosecution.
2. What Is the Tax Rate of Profits Tax in Hong Kong?
Hong Kong has a flat profits tax rate of 16.5%, one of the lowest rates in the world. It is the same for foreign and local corporations regardless of size and profit level. As a result, you can spend more resources on your manpower and equipment to continually develop your company.
The good news is yes, those unable to finish their tax returns on time can apply for late submission. Extensions are usually 7.5 months from the end of the company’s financial year. Depending on whether it is December 31 or March 31, the extended deadline will be mid-August or mid-November. If you find any difficulties in applying for an extension, you can seek help from an accounting service firm to help you send a request letter to the IRD for permission.
No, you still need to file your Profits Tax Return with well-prepared audit reports and tax computation, even if your company has no profits gained.
However, if after a few years of unprofitable performance, a company may not be sent a Profits Tax Return. In this case, the company doesn’t need to contact the IRD unless it starts to earn profits in the current financial year. Then, it needs to notify the IRD of its tax chargeability within four months after the end of the profit-making year.
Of course. Although there are no other people working for you, your identity as a Director will incur either Director’s fees or Director’s salary (two ways to give remuneration to a Director), and both are taxable. Even if you don’t receive any remuneration, you still need to file the Employers’ Return when received. It is required to complete your Employers’ Return whether you have a group of staff or only one ‘staff’ – yourself.
If your offshore company does not involve a trade, profession, or business in Hong Kong that has profits arising in or derived from Hong Kong, it will not be liable to Hong Kong profits tax. However, if it involves business in Hong Kong that has profits derived from Hong Kong, you have to report this to the IRD for tax chargeability. For offshore companies like Seychelles or BVI, it is not necessary to prepare audited financial statements and there are no tax requirements in these jurisdictions. But if you want to understand more about tax exemptions in your home country, it is suggested to consult your tax representative as the rules vary among different locations.
7. Can I Claim a Tax Deduction for My Charitable Donations?
Yes, you can claim a tax deduction for donations made to a recognizable charitable organization, but the total donation amount must not be less than $100 and should not exceed 35% of the assessable profits after depreciation allowance.
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