How to complete Form BIRS18 for qualifying ship brokers in Hong Kong

Form BIRS18 Qualifying Ship Broker Hong Kong

Form BIRS18 is the statutory form to claim the profits tax concession under section 23B of the Inland Revenue Ordinance (Cap. 112). Submit it to the Inland Revenue Department with the profits tax return (BIR51) for each year of assessment you claim the concession.

This concession reduces chargeable profits by treating a portion of eligible income as exempt from profits tax. It supports Hong Kong's maritime services sector, aligning the tax treatment of ship brokers with that of ship owners, operators and managers.

Eligibility Criteria for a Qualifying Ship Broker

Your business must meet the definition of a qualifying ship broker under the Inland Revenue Ordinance to use Form BIRS18. A ship broker arranges contracts for the carriage of goods by ship or for the hire of ships, but does not act as a principal in those contracts.

The Inland Revenue Department (IRD) applies these conditions:

• The broker must be a corporation or a partnership carrying on business in Hong Kong.
• Income must derive from ship broking activities carried out in Hong Kong.
• The broker must not be a ship owner, ship operator or ship manager for the same contracts.
• The broker must maintain proper records to demonstrate its income qualifies as eligible income.

The IRD may request additional information to verify a broker's status. A broker earning income from non-ship-broking activities must apportion its income accordingly.

BIRS18 Form Guide

The IRD's form guide sets out the information required to support a claim. The form requires these particulars:

• The broker's name, business registration number and tax file number.
• The year of assessment for which the concession is claimed.
• A breakdown of gross income from ship broking activities.
• A calculation of eligible income and the amount of profits tax concession claimed.
• Details of any related party transactions affecting the income calculation.
• A declaration that the broker meets the qualifying conditions.

A director, company secretary or authorised representative must sign the form. Attach a certified true copy of the broker's financial statements if the IRD requests it.

Ship Broker Tax Concession

The concession applies to profits from qualifying ship broking activities. Under section 23B of Cap. 112, it operates by treating a proportion of the broker's assessable profits as exempt. The exempt proportion is calculated by reference to the broker's eligible income as a percentage of its total income.

The concession does not apply to income from:

• Ship owning or operating activities.
• Ship management or agency services.
• Any activity not directly related to arranging contracts for the carriage of goods by ship or the hire of ships.

Compute the concession separately for each year of assessment. The IRD may adjust the calculation if the broker's records are insufficient or the income apportionment is unsupported.

Hong Kong Qualifying Ship Broker

A Hong Kong qualifying ship broker satisfies the conditions in the Inland Revenue Ordinance and carries on business in Hong Kong. The broker must have a physical presence, including a registered office or place of business, and must employ staff or engage agents who perform the broking activities in Hong Kong.

The IRD examines these factors when determining qualification:

• The location where broking contracts are negotiated and concluded.
• The place where the broker's staff perform their duties.
• The source of the broker's income and the nature of the services provided.

A broker registered outside Hong Kong may also qualify if it carries on business through a Hong Kong branch, provided the broking activities are conducted in Hong Kong and the income is attributable to that branch.

Form BIRS18 Instructions

The IRD provides Form BIRS18 instructions on its website and through the Business Tax Portal. These explain how to complete each section and calculate the eligible income and concession amount.

Key points from the instructions:

• The form must be filed with the profits tax return (BIR51) for the relevant year.
• The broker must attach a tax computation showing how the eligible income and concession are derived.
• For electronic filing through the Business Tax Portal, the form and supporting documents must be in iXBRL format.
• The broker must retain all supporting records for at least seven years after the year of assessment ends.

Incorrect or incomplete claims may result in the IRD rejecting the concession or imposing penalties. Seek professional advice if the calculation is complex.

Filing the Form with the Inland Revenue Department

File Form BIRS18 as part of the profits tax return process. Submit the form by the due date stated in the BIR51 notice. Late filing may result in penalties and delay the processing of the concession claim.

The filing channels are:

• Business Tax Portal: Electronic filing is available for brokers registered with the IRD's e-Tax system. The form and supporting documents must be uploaded in iXBRL format.
• Paper filing: The broker may print the form and submit it by post or in person to the IRD's office. Paper filers must attach a certified true copy of the financial statements and the tax computation.

The IRD has stated an intention to require all profits tax returns to be filed electronically by 2030. Brokers should prepare to file through the Business Tax Portal in future years.

Tax Computation and Financial Statements

The tax computation attached to Form BIRS18 must show the calculation of the broker's assessable profits and the concession amount. The computation should include:

• Total gross income from all sources.
• Gross income from qualifying ship broking activities.
• Eligible income as defined in the concession.
• The proportion of assessable profits that is exempt.
• The resulting chargeable profits after the concession.

Financial statements must be prepared in accordance with Hong Kong Financial Reporting Standards or equivalent accounting standards. The IRD may request a certified true copy of the financial statements if they are not attached to the form.

Assessment Year and Ongoing Compliance

Claim the concession for each assessment year separately. File Form BIRS18 for each year in which you seek the concession. If your circumstances change, such as ceasing ship broking activities or your income mix changing, notify the IRD and you may need to file an amended form.

The IRD may conduct a review of the broker's claim after the assessment is finalised. Keep all records relating to the concession for at least seven years after the end of the year of assessment.

Contacting the Inland Revenue Department

For specific queries about Form BIRS18 or the ship broker tax concession, contact the IRD's office. The IRD's website provides contact details and guidance notes. The Business Tax Portal offers electronic filing support.

The IRD does not provide legal or accounting advice. Engage a tax professional to ensure the form is completed correctly and the concession is claimed in accordance with the law.