How annual allowance is calculated in Hong Kong

Annual Allowance Hong Kong

The annual allowance in Hong Kong is the yearly tax deduction on the written-down value of qualifying capital assets. It is the recurring depreciation deduction for capital assets after the first year, letting a business recover the cost of eligible assets over their useful life for profits tax purposes. The Inland Revenue Department administers this regime under the Inland Revenue Ordinance. The allowance, also called the writing-down allowance, is claimed each tax year on the reducing balance of the asset's cost. The percentage applied depends on the asset class.

Hong Kong Writing Down Allowance

The writing-down allowance is the same concept as the annual allowance. It is the deduction claimed year after year on the asset's written-down value, after any initial allowance is taken in the first year. The written-down value is the asset's cost less any initial allowance and previous annual allowances.

Annual Depreciation Allowance Hong Kong

The annual depreciation allowance is the tax equivalent of accounting depreciation. Unlike accounting depreciation, which follows a company's accounting policy, the annual allowance follows prescribed rates from the Inland Revenue Department. Claim the allowance on the profits tax return, typically on Form BIR51.

Plant and Machinery Annual Allowance

For plant and machinery, calculate the annual allowance on the reducing balance of the asset pool. The standard rate is 20% per year. Certain assets qualify for a higher rate of 30% per year, including computer hardware and software. Claim the annual allowance on the aggregate pool, not on individual assets.

Capital Allowance Annual Rate Hong Kong

The capital allowance annual rate for plant and machinery is 20% on a reducing balance basis. Industrial buildings and structures qualify for a 4% annual allowance on a straight-line basis. Commercial buildings do not qualify for capital allowances. A balancing charge or balancing allowance arises when an asset is sold, adjusting the total allowances claimed against the actual depreciation.