Compliance FAQs
1.What are the primary legal requirements for a newly incorporated company in Hong Kong?
Newly incorporated companies in Hong Kong must register with the Companies Registry, obtain a Business Registration Certificate from the Inland Revenue Department (IRD), and comply with the Business Registration Ordinance.
2. Are there any annual filing requirements for companies in Hong Kong?
Yes, companies in Hong Kong must file an annual return with the Companies Registry and a Profits Tax Return with the IRD. Additionally, they are required to hold an Annual General Meeting (AGM) and file audited accounts annually.Generally, a newly registered business will receive its first Profits Tax return some 18 months after the date of commencement of business or the date of incorporation. It must then file the completed tax return to the Inland Revenue Department within 3 months from the date of issuance of the tax return. For filing in subsequent years, the tax return must be filed within one month from the date of issuance of the tax return.
3. How does a company comply with the Hong Kong Companies Ordinance regarding company records?
Companies must maintain proper books and records relating to their financial transactions for at least seven years. These records should be sufficient to enable accurate financial statements to be prepared and audited.
Tax related FAQs
1. What is the standard profits tax rate in Hong Kong?
The standard corporate tax rate, known as Profits Tax, is 16.5% on assessable profits for corporations and 15% for unincorporated businesses.
Following the enactment of the Inland Revenue (Amendment) (No. 3) Ordinance 2018 on 29 March 2018, the profits tax rate for the first $2 million of assessable profits will be lowered to 8.25% (half of the rate specified in Schedule 8 to the Inland Revenue Ordinance (IRO)) for corporations and 7.5% (half of the standard rate) for unincorporated businesses (mostly partnerships and sole proprietorships). Assessable profits above $2 million will continue to be subject to the rate of 16.5% for corporations and standard rate of 15% for unincorporated businesses. However, for two or more connected entities, only one of them may elect the two-tiered profits tax rates.
2. What types of taxes are businesses in Hong Kong subject to?
Businesses in Hong Kong are primarily subject to Profits Tax. There is no VAT or capital gains tax. However, salaries tax on employees and property tax on property owners apply. Also, stamp duties apply on (i) sale or transfer of immovable property in Hong Kong; (ii) lease of immovable property in Hong Kong; and (iii) transfer of Hong Kong stock.
3. When are tax returns typically due for a newly incorporated company in Hong Kong?
The first Profits Tax Return will be issued by the Inland Revenue Department to the company after 18 months of the date of incorporation. Subsequent returns are due annually.
4. What is the significance of offshore claim for tax purposes in Hong Kong? When and how should I claim offshore for tax purposes?
If a company derives income from sources outside Hong Kong, it may claim that income as offshore and potentially exempt from Hong Kong Profits Tax. Detailed records and specific activities related to income generation must be maintained to support such claims.You could claim offshore in the first tax return of the Company (arriving after 18 months of incorporation). The Inland Revenue Department (IRD) conducts a comprehensive examination of the documents provided. The review process by the IRD for determining offshore status may extend beyond six months.
Upon a favorable review, the IRD issues a confirmation letter granting offshore tax exemption. This exemption status is generally valid between three to five years.