Hong Kong Profits Tax
Total income for a company through a financial year is further categorized into “assessable profits”. This “assessable profits” is total income less other non-taxable deductions/additions, such as interest, depreciation, charitable donations, and others. Hong Kong profits tax is then chargeable on this “assessable profits” for each year of assessment, at a rate of 16.5 % for limited companies.
Next, the Hong Kong government will try to judge how much tax the company is to pay prior to the next year of assessment, and have the company pay a pre-tax plus the tax for the current year. This pre-tax is known as a “provisional tax”.
As the assessable profits for any particular year cannot be known to the Hong Kong government until after the year end, thus this “provisional tax” will be equal to the profits tax for the current year. Then, after next year’s financial year end and the tax is known, the tax for the year will be subtracted from the “provisional tax” charged last year, and also charge another “provisional tax” for the year after.
A breakdown is shown below to better illustrate the Hong Kong profits tax system (Tax allowance has not been included in this example)
| Assessable | Less: | Provisional tax | |||
| Year | Profits | Tax(16.5%) | Prior year provisional tax | For next year | Total tax |
| 2015 | 1,000,000 | 165,000 | – | 165,000 | 330,000 |
| 2016 | 1,000,000 | 165,000 | (165,000) | 165,000 | 165,000 |
| 2017 | 1,000,000 | 165,000 | (165,000) | 165,000 | 165,000 |
| 2018 | 1,000,000 | 165,000 | (165,000) | 165,000 | 165,000 |