Hong Kong Taxable Income

Hong Kong tax rates are among the lowest in the world

Hong Kong stands to be one of the most favorable regions across the world to do business. Consequently, it can be seen that there are numerous areas of concern which entrepreneurs and businesses have to take care of in order to ensure that their financial interests are properly safeguarded, and they get certain disposable income to ensure that their personal expenses are met. Taxable Income in Hong Kong is a relatively easier concept, and this article aims to provide a glimpse regarding its calculation.

Therefore, it becomes rudimentary to identify the rationale behind taxation, and calculate Taxable Income for Hong Kong companies. Corporate Tax, is the most important aspect, essentially because of the reason that it often tends to be confusing for a lot of entrepreneurs, and they are uncertain about their taxable income in a given financial year.

Calculation of Profit:

In Hong Kong, Corporate Tax is calculated on company’s assessable profits. The overall calculation for assessable profits is undertaken by making a number of adjustments to the company’s net profit.

1. Net Profit – The net profit calculation, to calculate taxable income, includes the following items:

• Profits that are earned as a result of business activity within Hong Kong
• Royalties which are gained from intellectual property rights in the area
• Rent which is earned from leasing movable property
• Income that is generated via interest
• Grants, or subsidies that are received by a business (This also includes any other financial assistance)
• Refunds or Contributions to retirement schemes

2. Assessable Profit – After subsequent calculation of the net profit, it then becomes important to make the following adjustments to the profit amount:

• Deduction of non-assessable profits
  This requires profits from all non-assessable profits to be deducted from the company’s net income. Examples include profits from business activity outside Hong Kong, and Capital received from the sale of Capital Assets.

• Deduction of qualified business expenses
  This requires companies to only deduct expenses that are incurred in the production of business income. For example, trademark and patent registration and bad debts written off.

• Deduction of underutilized losses
  In order to record and account for losses that have taken place in a given accounting year, the loss amount is deducted from the profit amount. However, in order for losses to be deductible, losses must have been from business activity that had taken place in Hong Kong.

• Addition of any balancing charges
  A balancing charge is basically a difference between the selling price of a given asset, and the written down value. In case of a positive value, this amount needs to be added back to profit.

• Deduction of capital allowances
  The deduction of capital allowances law allows business to get a tax relief in the form of capital allowances, which is mainly available for initial capital expenditure and annual depreciation.

Application of Tax Rate:

After the above adjustments have been subsequently made, companies taxable income is calculated. Subsequently, the appropriate tax rate is obtained to determine the profit payable for the certain year. The normal profit tax rate for corporations is calculated at 16.5% on assessable profits, whereas the tax rates for unincorporated taxes is calculated at the rate of 15%.

The Hong Kong tax rate and ordinance can be quite difficult to understand for laymen who rightfully require elaboration from tax experts. Our team will help you identify the correct rates, tax credits, tax deductions, and refunds to ensure accurate filing of your tax returns. Contact us now to experience the simplest and easiest tax filing process.