|
>Profits tax is charged on every person carrying on a trade, profession or business in Hong Kong in respect of profits sourced in Hong Kong from the trade, profession or business.
>Gains from the disposal of capital assets is not subject to profits tax.
>To determine whether a trade is carried on, consideration is made to the six badges of trade:
-
Subject matter
-
Length of period of ownership
-
Frequency of transactions
-
Supplementary work done
-
Reason for disposal
-
Profit seeking motive
>The source of profits is a practical hard matter of facts. Generally one looks at what the taxpayer has done to earn the profits and where such operations are done.
>The general principles are that in the case of a trader of goods, the profits are located at where the contracts are effected. In the case of a manufacturer or a person providing services, the profits are located at the place of manufacturing or activities. In the case of letting of properties or the employment of capital, the profits are located at where the properties are let or where the capital is employed.
>IRD issued DIPN 21 to explain its interpretation and practice as regards sources of profits. In the case of trading profits, the contract will be considered to be effected in Hong Kong if the goods are sold to or purchased from a Hong Kong client or supplier. For manufacturer of goods in China, if the Hong Kong taxpayer arranged the processing in China under a contract processing agreement the profits will be on a 50:50 basis. If the arrangement is import processing, the profits will be fully taxable.
>Some income are deemed to be taxable in Hong Kong such as royalties received by a non-resident for exhibition or use of cinema, TV films in Hong Kong or the use of patent, design trademarks in Hong Kong. The taxable profits are deemed to be 30% of the sums received except where the sum is received from a associate where the taxable profits are deemed to be 100%.
>Interest income is taxable if the provision of credit is in Hong Kong.
>Bank interest income is exempt, whether in Hong Kong or foreign currency.
>Dividend and capital receipts are exempt.
>Capital receipts are receipts from the disposal or destruction of a fixed asset. Compensation for the permanent loss of a capital asset is capital receipt.
>Unrealised profits are not taxable.
>Expense is deductible if incurred in the production of chargeable profits.
>Loan interest is deductible if the loan is borrowed for the purpose of producing chargeable profits, any one of the conditions in s.16(2) are fulfilled, the loan is not secured by a deposit where the interest income is exempt from Hong Kong tax and there is no interest flow back arrangement.
>Bad and doubtful debt is deductible if the debt has been included in trading receipt before or the taxpayer is a money lender and the debt is proved to the satisfaction of the assessor to have become bad.
>Expenditure on prescribed fixed asset is fully deductible in the year in which it is incurred.
>Capital expenditure is not deductible. Capital expenditure means expenditure incurred to provide an enduring benefit to the business.
>Domestic or private expenses are not deductible.
>The normal basis period is the accounting period ending within the year of assessment. For cessation, commencement and change of accounting dates basis, different rules apply.
>Loss is computed in similar manner as profits. Loss may be carried forward indefinitely to set off against future profits.
and more
|
