Do I pay tax if my company made a loss in Hong Kong

Do I Pay Tax If My Company Made a Loss

No. Profits tax is charged only on assessable profits, and a loss produces none. When your Hong Kong company's expenses exceed its income for a given year of assessment, there are no assessable profits and therefore no profits tax liability.

Having no tax to pay does not remove your obligation to file a return with the Inland Revenue Department.

Hong Kong Company Tax Loss and the Filing Requirement

Even when your company has made a loss, the Inland Revenue Department will issue a Profits Tax Return (Form BIR51 for corporations). You must complete and file that return within the specified time, usually one month from the date of issue unless a block extension applies. Along with the return, you must submit a tax computation and an audit report prepared by a practising certified public accountant.

Failing to file because there is no tax payable is a mistake. The IRD may issue an estimated assessment based on what it believes your profits to be, and that estimate may include tax you do not owe. You would then have to object to the assessment to correct it, which takes time and may incur penalties.

No Tax Payable on Loss: What to Show on the Return

When you complete Form BIR51, you declare the loss in the tax computation. The return is not a nil return in the sense of leaving it blank; you must show the figures that produce a loss. The IRD will record the loss and carry it forward for you.

The audit report that accompanies the return will confirm that the financial statements give a true and fair view of the company's position, even where the bottom line is negative.

Profits Tax on Loss: The Concept of Carry Forward

Losses can be carried forward indefinitely under Hong Kong law and set against future assessable profits of the same trade. This is a valuable entitlement. If your company makes a profit next year, the accumulated loss from prior years reduces the assessable profits and therefore the tax charge.

There is no time limit on loss carry forward in Hong Kong. The year of assessment in which the loss was incurred must be reported first. A loss cannot be claimed later if the return for that year was not filed.

Loss carry forward Hong Kong is automatic once the IRD has recorded the loss. You do not need to apply separately. In each subsequent return, you reflect the brought-forward loss in the tax computation. The IRD will check the computation against its own records.

Provisional Tax and Losses

The IRD issues a provisional profits tax assessment based on the profits of the preceding year. If that year showed a profit, you may receive a provisional tax demand even though the current year is a loss. You can apply for a holdover of provisional tax by filing the prescribed form with supporting evidence, such as management accounts showing the loss. The IRD will consider the application and may reduce or suspend the provisional tax.

The Audit Report and Tax Computation Are Still Required

A company that has made a loss must still produce audited financial statements. The audit report is filed together with the tax computation as part of the return. There is no exemption from the audit requirement merely because the company is loss-making. A dormant company may be exempt, but loss-making alone does not qualify for that exemption.

If your company has made a loss and you have not yet filed, prepare the accounts, engage your auditor, and file Form BIR51 with the audit report and tax computation within the due date. The IRD will record the loss, and you can use it to reduce future tax bills.