Every year between October and April, thousands of Hong Kong taxpayers receive the infamous “Green Bomb”—the green envelope containing the Tax Demand Note issued by the Inland Revenue Department (IRD).

Technically known as a tax assessment, this document specifies the final tax payable for the previous year and the provisional tax for the upcoming year. While the instinct for many is to simply check the amount and pay, blindly settling this note can be a costly mistake.

Many taxpayers miss out on valid deductions or pay incorrectly assessed amounts because they do not seek a professional tax review before the deadline.

What is the Basis of the Assessment?

In general, the IRD raises tax assessments based on the tax return you furnished earlier in the year. However, there are two scenarios where the figure on your demand note might differ from your expectations:

• Estimated Assessment: If you failed to file a tax return, the Assessor may issue an Estimated Assessment. This is often much higher than your actual liability. Do not ignore this. You generally cannot just object to the amount; you must file the missing tax return to correct it.
• Additional Assessment: The Assessor is empowered to raise an additional assessment within 6 years if they believe tax has been undercharged.

What Should You Check Immediately?

Upon receiving the note, you have a limited window to ensure you aren’t overpaying. Do not assume the IRD’s calculation is final. You should verify:

• Income Figures: Does it match your Employer’s Return?
• Deductions: Were your MPF contributions, charitable donations, and home loan interest correctly deducted?
• Allowances: Did the IRD apply all your entitled allowances (e.g., Married Person’s Allowance, Child Allowance, Dependent Parent Allowance)?
• Tax Reduction: Has the government’s one-off tax reduction (if applicable for that year) been applied?

Professional Tip: Many taxpayers are unaware of specific “technical” deductions. If the tax amount looks high, or if your personal circumstances have changed, contact us to handle your tax enquiries and perform a rapid position review.

The Two Key Burdens: Final Tax vs. Provisional Tax

The total amount payable on your demand note is usually split into two parts:

1. Final Tax: The balance due for the year just passed.
2. Provisional Tax: An advance payment for the current year, estimated based on last year’s income.

The note will typically split the payment into two instalments, usually due in January and April.

• 1st Instalment: Usually due in January, covering the final tax + 75% of the provisional tax.
• 2nd Instalment: Usually due in April, covering the remaining 25% of provisional tax.

Reference: www.ird.gov.hk/eng/pdf/irc6401e.pdf

Cash Flow Issues? Applying for a “Holdover”

If your income has dropped significantly compared to last year (by more than 10%), or if you have ceased employment, you do not have to pay the full Provisional Tax blindly.

You can apply for a holdover of provisional tax.

• The Condition: Your assessable income/profits for the current year are likely to be less than 90% of the preceding year.
• The Deadline: You must apply in writing 28 days before the due date or 14 days after the date of issue of the demand note (whichever is later).

Why use a professional? Holdover applications are often rejected if the supporting evidence or income projections are not presented correctly. We can assist in drafting a valid holdover application to preserve your cash flow.

Objecting to an Incorrect Assessment

If you disagree with the assessment (e.g., the IRD disallowed a deduction or estimated your income too high), you must act fast.

• Time Limit: You must lodge a formal tax objection stating precisely the grounds of objection within one month from the date of the notice.
• Strict Enforcement: Late objections are rarely accepted unless caused by “reasonable causes” like sickness or absence from Hong Kong.
• Consequence: If no valid objection is lodged, the assessment becomes final and conclusive.

Warning: A generic letter saying “Tax is too high” is not a valid objection. The objection must be substantiated by the IRO regulations. We highly recommend engaging a tax representative to draft your objection to ensure it is accepted by the Assessor.

Payment Methods & Consequences of Default

If the assessment is correct and you have no grounds for objection/holdover, you must pay on time.

• You can pay via PPS, FPS (scanning the QR code on the note), ATM, Internet Banking, or by e-Cheque.
• Late payment attracts an immediate 5% surcharge. If unpaid for 6 months, a further 10% surcharge is added to the total (including the 5%).
• If you are facing financial hardship and cannot pay, you may apply to the IRD for payment by instalments. However, unlike a “Holdover,” this usually incurs a surcharge.

Don’t Just Pay—Review First

The Tax Demand Note is a legal demand for payment, but it is also an opportunity to verify your tax efficiency.

• Is the calculation correct?
• Can you hold over the provisional tax?
• Should you object to the assessment?

Handling these matters incorrectly can lead to overpayment or penalties.

How HKWJ Tax Law can help

Need a Tax Health Check? If you have received a demand note and are unsure if the amount is correct, or if you need assistance with lodging an objection or holdover application, contact our tax team today. We handle everything from routine tax enquiries to complex objections, ensuring you only pay what you owe.