An Introduction to Profits Tax Return and Checklist for Your Audit

by FastLane Group Accountant, Auditor, Payroll

This article is originated from:

Previously in our article of Frequently Asked Questions About Auditing and Profit Tax Return, we had a brief introduction towards Profit Tax Return. Even though Hong Kong is named as one of the most tax-friendly systems in the world, let’s face it, as a business owner, it remains pretty complicated.  You may even be subjected to financial penalties for failing to file the correct documents or within the correct time frame. In this article, we will take a closer look at Hong Kong’s profit tax system and aim to alleviate your confusion and get you prepared for the audit.

1. Hong Kong’s Two-tiered profits tax regime

The Inland Revenue Department (IRD) has introduced a two-tiered profit tax rate regime on December 29, 2017.  With the aim to maintain a simple and low tax regime, as well as promoting economic development, the introduction of the two-tiered profit tax regime intends to reduce the tax burden on enterprises, with a particular focus on SMEs in Hong Kong.

For corporations, the tax rate for the first HK$2 million of assessable profits will be 8.25%, and the remaining profits will be taxed at the existing 16.5% tax rate.

Accessible ProfitsCorporationsUnincorporated Businesses
First HK$2 million8.25%7.5%
Over HK$2 million16.5%15%

2. Profits Tax Return Filing Timeline

Corporations, partnerships, trustees, and bodies of persons facilitating trade, profession or business in Hong Kong are legally required to be subjected to tax on all profits derived from Hong Kong.

If you have recently formed a company in Hong Kong, you will receive your first Profit Tax Return approximately 18 months after the date of incorporation.

You are required to submit your Tax Return (BIR51 or BIR52 or BIR54) along with an audit report to the IRD (The Inland Revenue Department) within 3 months from the day of the issue. Thereafter,  your Profit Tax Return will be issued by the IRD on the first working day of April every following year. You are required to complete and file an audit report every year, within 1 month of the date of issue.

Date of issueDeadline for submission
Initial Profit Tax ReturnAbout 18 months from the date of incorporation3 months from the day of issue
Profits Tax Return ThereafterFirst working day of April every year1 month from the day of issue

3. What should be included in the Profits Tax Return?

3.1. Profits Tax Return

There are three series of Profits Tax return forms:

  • Profits Tax Return – Corporations (BIR51)
  • Profits Tax Return – Persons Other Than Corporations (BIR52)
  • Profits Tax Return – In Respect Of Non-Resident Persons (BIR54)

3.2. Audit Report

  • A certified copy of the Statement of Financial Position / Balance Sheet
  • Profit & Loss Accounts
  • Tax computation

In Hong Kong, only a Certified Public Accountant (CPA) can perform the audit. In order for the CPA to perform a proper audit, correct management accounts are needed.

In order to prepare for your audit, it is best practice to have a list of required documents prepared.

3.3. Checklist of Required Documents

  • Audited financial statements of subsidiary companies
  • Copy of original Profit Tax Return from the IRD
  • All financial statements
  • All sales/service agreements, employment contract, tenancy agreement
  • All purchase invoice
  • Receipt for all expenses
  • Bank statements (The auditor might ask you to sign a confirmation form which will be sent to the bank to obtain the bank balance)
  • All sales invoices with the corresponding receipt
  • Copy of any special license like SFC License and Property Agent License (if any)
  • Copy of company registration documents:  
    • Updated business registration certificate
    • Incorporation certificate
    • Articles of association
    • Annual Return
Image Right

Sponsor Ads

About FastLane Group Junior   Accountant, Auditor, Payroll

2 connections, 0 recommendations, 13 honor points.
Joined APSense since, July 7th, 2020, From Hong Kong, Hong Kong.

Created on Aug 6th 2020 09:55. Viewed 375 times.


No comment, be the first to comment.
Please sign in before you comment.