in Hong Kong
is Direct tax
and also classified into Income tax
According to Cap.112 Hong Kong Ordinance, Inland Reveue Ordinance (in short, IRO) IRO Section 14, unless otherwise provides, profit tax shall be charged at the standard rate on any person who carries on a trade, profession or business in Hong Kong and assessable profits arising in or derived from Hong Kong for a year of assessment.
The formula is:
- HK profit tax payable = Net assessable profit X Profit tax standard rate
- Net assessable profit = Assessable profit - Loss brought forward (if any) + Loss transferred from partnership (if any)
- Assessable profit = Profit or (Loss) per financial account + (Disallowable expenses charged in account - Non-taxable income credited in account) - Depreciation allowances - Approved charitable donations
Approved charitable donations
The Approved charitable donations are limited to 10% of the amount after deducting of the Depreciation allowances, per IRO Section 16D. And after the amendment recently, it is changed to 25% of the amount after deduction of Depreciation allowances
The term person includes corporation
and sole properiter and so on.
Year of Assessment
The period of assessment mostly is from April 1st to March 31st of the following year, but it is up to taxpayer's wish with reasonable excuse. The example is financial year of the business.
Badges of Trade
Any trade may be subject to profit tax unless a reasonable man can provide evidence to proof that there is no any revenue
profit. In Hong Kong, capital profit is not subject to tax.
In order to proof the nature of a trade, the badges of trade are to be considered including the taxpayer's intention of profit, the length of ownership, frequency of similar transactions, reason for disposal, supplementary work and so on.