What are assessable profits in Hong Kong tax law

Assessable Profits Hong Kong: Definition and Determination

Assessable profits are the profit figure on which Hong Kong profits tax is charged. The Inland Revenue Department applies the territorial source principle to determine this figure. Only profits arising in or derived from Hong Kong are chargeable. Profits sourced outside Hong Kong are not assessable, regardless of where the taxpayer is resident. The Department's guidance on this principle is set out in Departmental Interpretation and Practice Note 21 (DIPN 21).

Hong Kong Assessable Profits Calculation

The calculation starts with the accounting profit shown in the audited financial statements. Adjustments are then made for items not deductible for tax purposes, such as capital expenditure and certain provisions, and for items taxed differently, such as foreign-sourced income. The result is the assessable profit for the year of assessment.

Taxable Profit Hong Kong

Taxable profit in Hong Kong is the same as assessable profits. The two-tiered profits tax rates apply. Corporations pay 8.25% on the first HK$2,000,000 of assessable profits and 16.5% on the remainder. Only one entity in a group of connected entities may elect the two-tiered rates; the others are charged at the upper rate on all their profits.

Inland Revenue Assessable Profits

The Inland Revenue Department assesses profits for each year of assessment. The basis period for a year of assessment is generally the accounting period ending in that year. The Department issues profits tax returns, typically Form BIR51 for corporations, together with any supplementary form required. Returns are generally due within one month of issue, although a block extension letter may set later dates where a tax representative is appointed.

Computing Assessable Profits Hong Kong

Computing assessable profits requires a tax computation. This starts from the accounting profit and lists all adjustments. Submit the computation with the profits tax return through the Business Tax Portal or the Tax Representative Portal. Provisional tax is charged on the estimated assessable profits of the current year of assessment, based on the previous year's figure.