Hong Kong tax cases, audit and complex tax advisory

Read it carefully and note the reply date it sets, then gather the letter, the returns and accounts it refers to, and any earlier correspondence. Do not send a substantive reply or hand over documents until you understand what the enquiry covers. If it mentions an audit, investigation, additional assessment or penalty, it is sensible to speak to a specialist before you respond.

Yes. You must lodge a written objection with the Commissioner of Inland Revenue within one month after the date of the notice of assessment, stating the grounds clearly. A late objection is accepted only if a reasonable excuse, such as absence from Hong Kong or illness, prevented you from objecting in time. Unless the assessor has agreed otherwise, the tax assessed stays payable while the objection is reviewed, so take advice before the one-month period runs out.

A statutory audit is an independent opinion from a practising CPA on whether a company’s financial statements give a true and fair view. Hong Kong companies generally need one each year, and a corporation files its audited accounts with its profits tax return. An IRD audit is different: the tax authority examines your records and returns to test the tax position you reported, which can lead to additional assessments or penalties. They are separate engagements with different purposes.

Since 1 January 2023, foreign-sourced dividends, interest, IP income and disposal gains received in Hong Kong by members of a multinational group can be chargeable to profits tax unless an exception applies, such as the economic substance, participation or nexus requirement. Whether income qualifies depends on its type, the group structure and what is actually done in Hong Kong, so these points are usually reviewed before income is brought into Hong Kong.

Whenever a Hong Kong business deals with associated companies or persons, the terms are expected to be at arm’s length, and the IRD can adjust profits where they are not. Entities above the size and transaction thresholds must also keep master file and local file documentation. It is better to review a related-party arrangement before it is set up than after the IRD asks about it.

A specialist reviews the facts and documents you outline and confirms what is in scope. The scope, responsibilities and fees are agreed with the adviser before any work begins, and you decide whether to go ahead. You can describe your case through the contact page without an account. Consultants’ phone numbers and email addresses are shown to registered users, while calculators and guides are open to everyone.

The Inland Revenue Department (IRD) usually issues tax returns in early May. Individual taxpayers have one month to file (typically by early June). Businesses may apply for extensions depending on their accounting year-end date — D code (December year-end) has a deadline of mid-August, while M code (March year-end) has until mid-November.

Anyone who receives a tax return from the IRD is required to file it, even if they have no income or their income is below the taxable threshold. Employees earning above the basic allowance (HK$132,000 for 2023/24), self-employed individuals, and businesses with assessable profits must all file returns.

Salaries tax is calculated on your net chargeable income (total income minus deductions and allowances). It uses progressive rates from 2% to 17%, but is capped at the standard rate of 15% on net income without personal allowances. You pay whichever amount is lower.

Common deductions include: MPF mandatory contributions (up to HK$18,000/year), self-education expenses (up to HK$100,000), home loan interest (up to HK$100,000 for 20 years), approved charitable donations, and elderly residential care expenses. Personal allowances also apply based on marital status and dependents.

Hong Kong taxes can be paid via: electronic payment (eTAX online), bank ATM, PPS (phone/internet), designated convenience stores (for bills under HK$5,000), cheque by post, or in person at a post office. Tax is typically payable in two installments — 75% first, then 25%.

For the 2024/25 year of assessment, the basic allowance is HK$132,000 for a single person. Married persons' allowance is HK$264,000 if jointly assessed. Additional allowances include: Child allowance (HK$130,000 for the first to 9th child), Dependent parent/grandparent allowance (HK$25,000–50,000 per dependent), and Disabled dependant allowance (HK$75,000). Your net chargeable income is total income minus allowable deductions minus these personal allowances.

Since the 2018/19 assessment year, Hong Kong operates a two-tier profits tax system designed to benefit small businesses. The first HK$2 million of assessable profits is taxed at 8.25% for corporations (7.5% for unincorporated businesses). Profits above HK$2 million are taxed at the standard rate of 16.5% for corporations (15% for unincorporated). Only one entity within a connected group of companies can benefit from the lower first-tier rate.

Yes. If you own and rent out property in Hong Kong, you are subject to Property Tax at a flat rate of 15% on your net assessable value. The net assessable value is your annual rental income minus a 20% statutory deduction for repairs and outgoings — so the effective tax on gross rent is 12%. Owners who are companies or individuals already paying profits tax on their rental income may elect for exemption from Property Tax to avoid double taxation.

Yes. The Home Loan Interest Deduction (HLID) allows you to deduct up to HK$100,000 per year in mortgage interest on your principal place of residence in Hong Kong. You can claim this for a maximum of 20 years (not necessarily consecutive). You cannot claim the deduction in any year where you receive rental income from that property, or where the property is not your main residence.

Hong Kong has signed Comprehensive Double Taxation Agreements (CDTAs) with over 45 jurisdictions, including Mainland China, Japan, the UK, Ireland, France, South Korea, and Singapore. If you are taxed in two countries on the same income, the relevant CDTA determines which jurisdiction has primary taxing rights. You can generally claim a tax credit in one country for the tax you paid in the other. Check the IRD's website for the full list of CDTAs currently in force.

Failing to file, or filing late without IRD approval, can result in: (1) Additional tax — the IRD may charge up to 3× the tax originally payable as a penalty; (2) Court fine — up to HK$10,000 plus a further HK$300/day for continued non-compliance; (3) Estimated assessment — the IRD will issue an estimate that is typically higher than your actual liability, and you must pay this while disputing it. If you genuinely cannot meet a deadline, always request an extension in advance — the IRD grants them routinely for businesses.