2021 Tax Filing Season in Hong Kong is Here
The Hong Kong fiscal year runs from 1 April to 31 March of the following year. Accounting period for businesses can be departed from the fiscal year. However, the end of the fiscal year comes with the start of the 2021 tax filing season.
No matter whether it is your first time to file tax returns in Hong Kong or whether you have been living / or carrying out business in Hong Kong for a long time already, the following practical information will assist you with the upcoming tax filing season and give you some tips to minimise your tax liabilities.
What Types of Tax Returns Need to be Filed and When?
In generally, the IRD issues the following tax returns to taxpayers and the usual filing deadlines are one month from the issue date:
|Tax return||Matters to report||Issue date||Filing time|
|Employer’s Return||Remuneration paid by employers to their director/employee||Early April||Early May|
|Profits Tax Return||Profits from partnership and corporate businesses||Early April||Early May|
|Individual Tax Return||Employment income, director’s fee, pension income, rental income from solely owned properties and profits from sole proprietorship business||Early May||Early June|
Can I Apply for Extension when Filing a Tax Return?
The IRD generally allows the following extensions to taxpayers:
Profits Tax Return
- Extension to mid-August for represented businesses (i.e. a tax representative has been appointed), whose accounting periods end in December;
- Extension to mid-November for represented businesses, whose accounting periods end between January and March, and a further extension to end of January of the following year if these businesses are in a tax loss position.
Individual Tax Return
- One month extension for represented individuals without a sole proprietorship business;
- Two months extension for individuals with a sole proprietorship business;
- Four months extension for represented individuals with a sole proprietorship business.
The extension dates / periods may vary slightly from year to year. The specified due dates are announced by the IRD annually. Generally, it can be said that upon appointing a tax representative, such as HKWJ Tax Law & Partners, one gets around 7.5 months after the end of their accounting period for filing the profit tax returns and additional one or four months for filing their individual tax returns.
What are the Consequences of Late Filing?
The consequences of non/late filing of tax returns can be rather serious. The IRD may institute prosecution and/or impose a penalty, which can be up to a maximum of three times of the tax payable. In addition, the IRD may also issue estimated tax assessments in the absence of profits tax returns / individual tax returns filed.
Such estimated tax assessment would become final and conclusive if no valid objection is lodged within a one-month objection period. In other words, one will have to pay taxes on the income/profit estimated by the IRD even if he/she has not earned such income/profit.
Do I Need to File the Tax Returns if I Have Nothing to Report?
The answer is yes. Even if your business has not commenced yet and you did not have any profit / income or your business did not pay any remuneration to any director / employee yet, you are still required to complete the tax returns on a “nil” basis and file them with the IRD together with all the required supporting documents.
How to Report my Business Profits in the Tax Return & What Documents are Required?
Every business has to keep sufficient records of its income and expenditure to enable the assessable profits to be readily ascertained. The required documents include invoices, expense bills, bank statements, receipts, records of all entries of receipts and payments, inventory lists, etc.
Based on these documents, accounting books and records are then prepared, which include the ledger, journal, trial balance, profit and account accounts and balance sheet. In addition, a Hong Kong incorporated company also needs to prepare separate audited financial accounts.
For calculating assessable profits, one has to prepare a profits tax computation showing the tax adjustments made to the accounting profits as shown in the financial accounts.
Generally speaking, the submission of Profits Tax Return needs to be supported by the financial accounts (or audited accounts for a Hong Kong incorporated company), the profits tax computation and other supporting schedules as required by the IRD.
What is Tax Planning & How Does it Reduce Tax Liabilities?
It is possible for one to reduce his/her tax liabilities with a well-thought tax plan put in place at an early stage. A tax plan should be tailored to one’s own circumstances in order to achieve tax efficiency. For example, the most common type of tax planning opportunity is the provision of tax-efficient fringe benefits to directors / employees.
By utilising the difference in tax methods and rates of different fringe benefits, the expenses incurred by the employer on such provisions can be tax-deductible for profits tax purposes and at the same time, the benefits can also be tax-free or taxed at a lower rate in the hands of directors/employees.
In addition, there are different tax deductions, allowances, and incentives available under the Hong Kong tax regimes and the availability of them depends on the circumstances of the taxpayer. As such, early tax planning may also avail you of the opportunity to claim such tax deductions, allowances, and incentives in your next tax filing.
Your 2021 Tax Filing Partner
Does the above sounds a bit tedious and overwhelming to you? In fact, most entrepreneurs and start-up businesses prefer to spend their time on growing their business instead of consolidating the accounting entries which an experienced and professional firm will do much more efficient.
A professional firm like HKWJ Tax Law & Partners which provides one-stop services including bookkeeping, accounting, audit, tax compliance and advisory services can deal with your 2021 tax filing and help you to concentrate on your bigger goal: Your business growth.