Profits tax is payable by every company carrying on a business in Hong Kong, on profits arising in or derived from Hong Kong.  Profits which are a foreign source (often termed "offshore profits") are thus generally beyond the territorial scope of Hong Kong's taxation system, including for locally incorporated companies. 
 
Following incorporation, companies are generally tracked by the tax authorities and issued with a tax return for the first anticipated "year of assessment".  Even when no tax return has been issued, however, the company has an obligation to notify the tax authorities if assessable profits have arisen.
 
The year of assessment runs from 1 April to 31 March.  The profits assessed for each year are those for the accounting period ending within that year of assessment.  The month in which the accounting period ends generally determines the deadline by which the company must file its tax return and financial statements for each year of assessment.  Typical filing deadlines are: 

    Year ended                          Filing date
 1 January - 31 March              15 November
 1 April - 30 November             30 April
 1 December - 31 December          15 August

Overseas incorporated companies must file tax returns in respect of their Hong Kong branch operations on the same basis as a locally incorporated company, although it is normally sufficient to file branch accounts rather than those of the head office company.
 
Similar to most other jurisdictions, Hong Kong tax legislation requires various adjustments to be made to accounting profit in order to arrive at taxable profit, and these are usually reflected in a separate tax computation which accompanies the tax return. Non-taxable items include capital gains, offshore profits, bank deposit interest and dividends. However, inter-company interest paid overseas is often disallowable. Tax depreciation for fixed assets is allowed at prescribed rates, including a 100% first year write-off for computer equipment. Losses cannot be offset against the profits of other members of a group of companies.
 
Assessable profits are taxed at a rate of 17.5%. On the basis of this low rate, Hong Kong does not provide any special tax incentives for particular types of activity.
 
No fixed dates are prescribed for the payment of tax - these are determined by the notices of assessment issued for each tax year. Normal practice is for a 'provisional' estimated assessment to be issued during the tax year (based on prior year results), with a final assessment issued after the tax return has been filed. The provisional assessment requires payment of 75% of the estimated liability immediately, with the balance due at a later specified date.
 
Hong Kong tax liabilities and filing obligations can also arise on payments overseas for the use of intellectual property (normally 5.25%) and on Hong Kong consignment agents who sell goods on behalf of a non-resident (0.5% of gross sales proceeds). These both operate like withholding taxes.
 
Hong Kong has entered into a full scope double tax agreement with Belgium and a limited scope double tax arrangement with the People's Republic of China. Unilateral double tax relief is provided in Hong Kong when overseas taxed income is also subject to Hong Kong tax, but only in respect of overseas taxes which are in the nature of a tax on profits.
 

How PwC can help
 
Tax Compliance
? Statutory deadlines can interfere with the effective performance of the company's accounting department at certain times of the year, and missed deadlines can spell substantial penalties.  PwC can relieve the company of this compliance burden through timely preparation of tax returns and advising on tax authority enquiries into tax returns.
 
? It may be possible to defer a provisional tax payment when corporate profits decline.  PwC can help apply for deferral in these circumstances.
 
? Under certain circumstances, assessments can be re-opened for up to six years where an error or omission in a tax return is proven.  PwC can advise and manage this process.
Tax Consulting
? From a manufacturing base, Hong Kong has now evolved into a mixed economy which plays a leading role within the global structures for the trade, financial services and telecommunications industries.  The complexities of everyday modern business in Hong Kong are not always matched by a tax system capable of handling such complexities.  At times this can create uncertainty of tax treatment, and at others opportunities.  PwC aims not simply to steer a course around the system's rules and regulations, but also to use these for the benefit of our clients' businesses.
 
? Hong Kong's hitherto relatively relaxed tax environment is now giving way to a rigidly enforced regime where faultless tax compliance is expected by the authorities.  In particular, offshore claims are being thoroughly scrutinized, and it is essential that documentation and practice supports the claim.  PwC can undertake a "healthcheck" to ensure existing claims are sound, and identify where new claims are viable.
 
? Where complex transactions are being contemplated, it may be advisable to seek tax clearance in advance.  PwC can advise on the circumstances where this may be worthwhile.
 
? Other areas of value added areas of advice include:   Tax depreciation reviews on    buildings in order to maximum claims
   Business planning to avoid tax losses being isolated and lost forever
   Ensuring a tax deduction is obtained for all funding costs
Looking ahead, the next decade is likely to witness significant changes in the structure and complexity of Hong Kong's tax system, against a backdrop of  increasing application of e-commerce.  PwC can guide your business through this changing world, harnessing these changes to your competitive advantage.

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