Hong Kong has one of the simplest and lowest tax systems globally, attracting many international companies to set up operations here. As part of its tax system, Hong Kong imposes a territorial basis of taxation, meaning only profits derived from trade, profession, or business carried out in Hong Kong are subject to profits tax. Nonetheless, every company incorporated or registered in Hong Kong must fulfill its statutory obligations by filing an Annual Return and audited accounts annually with the Registrar of Companies through the Government’s e-Registry portal. Moreover, companies carrying out business activities in Hong Kong must also file a Profits Tax Return with the Inland Revenue Department (IRD) within one month of receiving the notice of assessment issued by the IRD.
Profits tax rates in Hong Kong are low compared to other jurisdictions worldwide. For the first $2 million of assessable profits, the effective tax rate is 8.25%, and then progressively increases to 16.5% above HK$2 million. Assessable income refers to net chargeable income less deductions allowed under the Income Tax Ordinance.
To complete the corporate tax return, companies need to prepare financial documents such as balance sheets, income statements, and cash flow statements. These statements should comply with relevant accounting standards and show the true and fair view of the company’s financial position and performance during the reporting period.
Also, it is advisable for companies to maintain accurate records throughout the year to facilitate timely completion of the corporate tax return with records such as bank statements, sales receipts, purchase invoices, contracts, leases, and other documentation supporting transactions may be requested by the IRD.
Companies may require a tax representative to handle their corporate tax affairs. A tax representative acts as an intermediary between the foreign company and the Hong Kong Inland Revenue Department (IRD) for tax purposes.
In addition, the tax agent can act on behalf of the company to handle all communication with IRD regarding tax matters.
By having a tax representative, foreign companies can ensure compliance with Hong Kong tax laws and regulations, minimize tax risks, and avoid costly penalties and fines for non-compliance. A tax representative can also help optimize tax planning strategies and maximize tax savings opportunities.