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NIL Profits Tax Return VS. Profits Tax Exemption

The effective operation of the simple tax system with low tax rates in Hong Kong requires a high degree of compliance and understanding by taxpayers and businesses. It is also the responsibility of each and every taxpayer under the law to file accurate and timely tax return to the Hong Kong Inland Revenue Department (IRD).

 NIL Profits Tax Return

When to file the NIL Profits Tax Return

It’s often misunderstood that a “NIL” Profits Tax Return (PTR) return are filed for businesses that have not carried out business activities in Hong Kong. This notion is wrong, and it could lead to further tax implications, heavy tax penalties and possible court summons for businesses down the road. Companies should file a “NIL” PTR when they have not commenced any business transactions throughout the period, whereas the commencement of business is when the company starts its business activities.
Companies can benefit from the Hong Kong’s territorial tax system, whereas tax is only levied on profits derived in Hong Kong and zero taxable income for profits outside of Hong Kong, but they first must apply for the profits tax exemption and be granted offshore company status. Offshore status is not automatically granted, and companies should never assume that this will be granted when filing a “Nil” PTR.

 

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Consequences of Misfiling the Profits Tax Return Form

The Inland Revenue Ordinance (IRD) states that punitive actions can be taken against a person under section 80(2) of Part XIV, who without a reasonable excuse, for the following:

  • makes an incorrect return;​​
  • makes an incorrect statement;​
  • gives any incorrect information;​
  • fails to furnish a return in time; or​
  • ​fails to inform chargeability to tax.

​​The offence is subject to a fine of $10,000 and triple the amount of the undercharged tax.

Startupr can offer our professional advice on these filings, as we have experience in properly handling “Nil” PTR returns and offshore status for profits tax exemption cases. In the case your company has improperly filed a “Nil” PTR when it has conducted business activities outside of Hong Kong, Startupr can assist in getting your company back on track with the correct tax return filings and proper compliance with the government.