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We mentioned the common problems for Hong Kong Business Starters
in last issue. We are now introducing some other common matters.
Authority of the Small Corporation / Business
Since April 1, 2000, a small corporation/business which has total
gross income not exceeding HK$500,000 for the year is not required
to submit the tax return together with Supporting Documents, including
audited accounts. However, such Supporting Documents will still
be required to be submitted, upon request by the Inland Revenue
Department ("IRD") Therefore, such Supporting Documents
should be prepared before submission of tax return.
First Time Employer
If you consider your employees are liable to Salaries Tax for any
year of assessment and have not yet received any tax return within
4 months after the end of the basis period for the year of assessment
concerned, you should inform the IRD for a Tax Return in writing.
In the requisition, you should provide the full name and Business
Registration number of the company.
(1) The IRD would issue an Employer's Return of Remuneration and
Pension (one set of B.I.R. 56A and many sets of I.R. 56B) in April
every year. Employers are required to complete and file the return
within 1 month.
(2) If you commence to employ an employee, you should notify the
IRD by completing and filing a Form IR56E within three months of
commencement of the employment.
(3) If an employee ceases his/her employment, you should inquire
whether that employee intends to leave Hong Kong after termination
of the employment.
- If the employee does not intend to leave Hong Kong, a Form IR56F
should be filed not later than one month before the date of termination
of employment. For filing of Form IR56F, only one copy is needed.
- If yes, a Form IR56G should be completed and filed in duplicate
not later than one month before the expected date of departure.
You must also temporarily withhold payments of salaries and all
other moneys due to that employee until the IRD issues "a letter
of release".
Reporting Remuneration Paid To Persons Other Than An Employee
If a company pays commission, fees or other remuneration to sub-contractors
exceeding HK$200,000 per annum, consultants, agents, brokers, freelance
artistes, entertainers, sportsmen or writers etc in excess of $25,000
per annum, I.R. 56M should be filed for each of these recipients.
Assessable Profits
The Assessable Profits (or Adjusted Loss) are the net profits (or
loss) [other than profits (or loss) arising from the sale of capital
assets] for the basis period, arising in or derived from Hong Kong,
calculated in accordance with the provisions of Part IV of the Inland
Revenue Ordinance I.R.O. The Assessable Profits should not include
any gain from disposals of capital assets; dividends received from
a corporation which is subject to Hong Kong Profits Tax; amounts
already included in the assessable profits of other persons chargeable
to Profits Tax; interest on Tax Reserve Certificates, etc. For the
deductible item, generally, all outgoings and expenses, to the extent
to which they have been incurred by the taxpayer in the production
of chargeable profits, are allowed as deductions.
In computing the assessable profits, deduction is specifically
prohibited in respect of the following: -
- domestic or private expenses and any sums not expended for the
purpose of producing the profits;
- any loss or withdrawal of capital, the cost of improvements and
any expenditure of a capital nature;
- any sum recoverable under insurance or contract of indemnity;
- rent of or expenses relating to premises not occupied or not used
for the purpose of producing the profits;
- taxes payable under the Inland Revenue Ordinance, except for Salaries
Tax paid in respect of employees' remuneration;
- any remuneration or interest on capital or loans payable to or,
contribution made to a mandatory provident fund scheme in respect
of the proprietor or the proprietorŐs spouse or, in case of a partnership,
to its partners or their spouses.
For details, please refer to the pamphlets based on the BIR 51
(for company limited / corporation) or BIR 52 (for sole proprietorship
or partnership).
| Example: Mary Lee's Slimming Centre |
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| Year of Assessment 2004/05 |
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| |
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HK$ |
HK$ |
| Profit / Loss as per Tax Return |
|
|
500,000 |
| ADD : |
Non-deductible items
Traffic penalty
Entertainment, say 1/3
Motor vehicle expenses, say 2/3
Salaries to Miss Mary Lee
Depreciation |
|
3,000
30,000
40,000
120,000
300,000 |
|
| LESS : Depreciation allowances |
|
|
(420,000) |
| Assessable profits |
|
|
$573,000 |
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