Profits tax

Home > Preview

The flashcards below were created by user yhliuaa on FreezingBlue Flashcards.


  1. s2: "Business" interpretation
    "Business" includes agricultural undertaking, poultry and pig rearing and the letting or sub-letting by any corporation to any person of any premises or portion thereof, and the sub-Jetting by any other person of any premises or portion of any premises held by him under a lease or tenancy other than from the government.
  2. s2: "Lease" interpretation
    • "Lease" in relation to any machinery or plant, includes:
    • - any arrangement under which a right to use the machinery or plant is granted by the owner of the machinery or plant to another person; and
    • - any arrangement under which a right to use the machinery or plant, being a right derived directly or indirectly from a right referred to in paragraph (a), is granted by a person to another person.
  3. s14: Charge of Profits Tax
    • Profits tax is charged on every person carrying on a trade, profession or business in Hong Kong in respect of his profits arising in or derived from Hong Kong (excluding profits arising from the sale of capital assets).
    • There are 3 conditions under s.14:
    • - the person must carry on a trade, profession or business in Hong Kong;
    • - the profits to be charged must be from such trade, profession or business carried on by the person in Hong Kong; and
    • - the profits must be arising in or derived from Hong Kong.
  4. s14A(1)(a): Concessionary trading receipts chargeable to tax at half the usual rate
    Sums received by or accrued to a person as interest paid or payable on a medium term debt instrument or short term debt instrument
  5. s14A(1)(b): Concessionary trading receipts chargeable to tax at half the usual rate
    Sums received by or accrued to a person as any gain or profit on the sale or other disposal on the redemption on maturity or presentment of a medium term debt instrument or a short term debt instrument.
  6. s14B: Concessionary trading receipts chargeable to tax at half the usual rate
    Assessable profits of a corporation, to the extent they are the assessable profits of the corporation derived from the business of reinsurance of offshore risks as a professional reinsurer within the meaning of s23A(2).
  7. s15(1)(a): Deemed trading receipts: Royalty income received by non-residents
    Sums received by or accrued to a person for the exhibition or use in HK of cinematograph or television films, tapes, sound recording or any advertising materials connected with any such properties.
  8. s15(1)(b): Deemed trading receipts: Royalty income received by non-residents
    Sums received by or accrued to a person for the use of or right to use in HK any patent, design, trademark, copyright material, secret process or formula or other similar property, or for imparting knowledge in connection with the use in HK of any such properties.
  9. s15(1)(ba): Deemed trading receipts: Royalty income received by non-residents
    Sums received by or accrued to a person for the use of or right to use outside HK any patent, design, trademark, copyright material, secret process or formula or other similar property, or for imparting knowledge in connection with the use outside HK of any such properties, which are deductible in ascertaining the assessable profits of a person under profits tax.
  10. s15(1)(c): Deemed trading receipts: Financial subsidy/assistance
    Grants, subsidies or other similar financial assistance received by or accrued to a person in connection with a trade, profession or business carried on in Hong Kong, other than sums in connection with capital expenditure.
  11. s15(1)(d): Deemed trading receipts: Rental income
    Hire or rental received for the use of or right to use movable property in Hong Kong.
  12. s15(1)(f): Deemed trading receipts: Interest income
    Interest derived from Hong Kong received by a corporation. To determine whether interest is derived from HK -> the provision of credit test is normally applied (i.e. the place where the money is first made available to the borrower).
  13. s15(1)(g): Deemed trading receipts: Interest income
    Interest derived from Hong Kong received by a person other than a corporation , and the interest is in respect of funds of the trade, profession or business.
  14. s15(1)(h): Deemed trading receipts: Refund of MPF contribution
    Refund of contributions made by the employer to a RORS or MPF scheme, to the extent the amount has been allowed as a tax deduction.
  15. s15(1)(i): Deemed trading receipts: Interest income
    Interest received by a FI through or from the carrying on of its business in HK, notwithstanding that the source of interest income is outside Hong Kong.
  16. s15(1)(j): Deemed trading receipts: Profits from certificate of deposits / bills of exchange
    Gain/profits arising in or derived from HK from disposal of certificates of deposit / bills of exchange received by a corporation. To determine whether the profits arise in or derive from HK is determined by the contract effected test (i.e. the place where the contracts of purchase and sale are effected).
  17. s15(1)(k): Deemed trading receipts: Profits from certificate of deposits / bills of exchange
    Gain/profits arising in or derived from HK from disposal of certificates of deposit / bills of exchange received by a person other than a corporation.
  18. s15(1)(l): Deemed trading receipts: Profits from certificate of deposits / bills of exchange
    Gain/profits from disposal of certificates of deposit or bills of exchange received by a FI through or from the carrying on of its business in HK, notwithstanding that the source of profit is outside HK
  19. s15(1)(m) & s15A: Deemed trading receipts: Consideration for transfer of right to receive income
    Sums received as consideration for the transfer of the right to receive income (such as rent, interest or royalty) which is subject to profits tax. This is done by assigning the income to another person without assigning the underlying asset.
  20. s15(2): Deemed trading receipts: Release of trade debts
    Where a deduction has been allowed for a trade debt which is subsequently released, the part released is a deemed trading receipt upon release in that year.
  21. s15C: Stock valuation on cessation of trade or business
    • (a)If stock is sold or transferred for valuable consideration and the purchaser will deduct the cost in computing his profits chargeable to tax -> stock is valued at the amount realised or consideration given for the transfer.
    • (b)If stock is sold in other cases -> stock is valued at open market value on date of cessation
  22. s15E: Stock borrowing and lending
    Dividend, bonus shares, etc received by lender under Stock borrowing & lending transactions is exempted from Profits tax. Profits or loss derived from Stock borrowing & lending at the time of borrowing and return is exempted from Profits tax.
  23. s16(1): General deduction
    Deduction of all outgoings and expenses to the extent to which they are incurred during the basis period for that year of assessment by person in the production of chargeable profits for any period.
  24. s16(1)(a): Allowable deductions under specific items
    Subject to conditions under s 16(2) and (2A) to (2G), interest payable on money borrowed for the purpose of producing chargeable profits, and sums payable by way of legal fees, procuration fees, stamp duties and other expenses in connection with such borrowing.
  25. s16(1)(b): Allowable deductions under specific items
    Rent paid for the purpose of producing assessable profits. In the case of rent paid to the tenant's spouse, or to the partner (or their spouses), the amount allowable cannot exceed the assessable value of the property.
  26. s16(1)(c): Allowable deductions under specific items
    • Overseas tax in respect of interest income and gain/profits from sale of certificate of deposit/bills of exchange chargeable under s.15(1 )(f), (g), (i), G), (k) or (1). Other foreign tax paid may be deductible under s.16(1) if (DIPN 28 refers)
    • (a) the tax is an expense that must be borne regardless of whether or not a profit is derived (i.e. the foreign tax is charged on the gross amount of the earnings); and
    • (b) the gross amount of earnings that are themselves chargeable to Hong Kong profits tax Eg. withholding tax on interest or royalties, sales tax or custom duties.
  27. s16(1)(d): Allowable deductions under specific items
    • Bad and doubtful debts are deductible if:
    • (i) proved to become bad, and
    • (ii) provided that the debt has been included as a trading receipt or the debt has been money lent in the ordinary course of a money-lending business.
    • - Specific trade debts included as trading receipts previously, and proved to be bad -> deductible.
    • - Loan made to staff -> non-deductible
    • - General provision for bad debts -> non-deductible
    • - Recovery of bad debt (deduction was claimed before) -> taxable
  28. s16(1)(e): Allowable deductions under specific items
    Repairs expenditure (of revenue nature) to any premises, P&M, implement, utensil or article in the production of chargeable profits is deductible.
  29. s16(1)(f): Allowable deductions under specific items
    Expenditure on the replacement of any implement, utensil or article employed in the production of chargeable profits is fully deductible. No DA on initial purchase costs for such items. Implements, utensils or articles are defined as including crockery and cutlery, loose tools, soft furnishing (eg. curtains and carpets), kitchen utensils, etc.
  30. s16(1)(g): Allowable deductions under specific items
    Registration fee of a trademark, design or patent, used in the production of chargeable profits is deductible.
  31. s16(2)(a): Interest expenses deduction
    Money is borrowed from an FI
  32. s16(2)(b): Interest expenses deduction
    Money is borrowed by a public utility co., at rate of interest not exceeding the rate prescribed by the Financial Secretary.
  33. s16(2)(c): Interest expenses deduction
    Money is borrowed from non-FI, and the lender is liable to tax on the interest.
  34. s16(2)(d): Interest expenses deduction
    Money is borrowed from a FI or overseas FI.
  35. s16(2)(e): Interest expenses deduction
    Money is borrowed from non-associate, and the money borrowing is used wholly and exclusively to finance P&M which qualifies for depreciation allowance, or the purchase of trading stock.
  36. s16(2)(f): Interest expenses deduction
    • Interest is payable:
    • (i) on debentures listed on HK stock exchange or any other stock exchange recognized by IRD
    • (ii) on instruments which are marketable in HK or any other major financial centre recognized by IRD
    • (iii) on money borrowed from an associated corporation where that associated corporation raised the funds originally by way of an issue of debentures or instruments above, and the interest paid by the corporation does not exceed the interest payable by the associated corporation to the debenture/instrument holders.
  37. s16(2A): Restrictive sections on interest expense deductions
    • Secured loan test: [applicable to s. 16(2)(c). (d)&(e) cases] If the borrowing is secured by a deposit or a loan whether wholly or partly, directly or indirectly, made by the borrower or its associate with or to:
    • (i) the lender or its associate;
    • (ii) a Fl/overseas Fl or its associate, and
    • any interest income received from the secured deposit or loan is not chargeable to profits tax, the amount of interest deduction shall be reduced on a reasonable basis (DIPN 13A refers).
  38. s16(2B): Restrictive sections on interest expense deductions
    • Interest flow back test: [applicable to s.16(2}{c). (d)&{e} cases] If arrangements are in place whereby any of the interest on the money borrowed is payable, whether directly or through any interposed person, to the borrower or to a person who is connected with the borrower, and the borrower or the person is not an excepted person. The amount of interest deduction shall be reduced by an amount calculated in accordance with the formula listed in DIPN13A.
    • "Excepted person" includes a person who is chargeable to profits tax in respect of the interest income.
  39. s16(2C): Restrictive sections on interest expense deductions
  40. Interest flow back test: [applicable to s.16(2)(f) case] If arrangements are in place whereby any of the interest on the debentures or instruments was paid,
    • whether directly or through any interposed person, to the borrower or to a person who is connected with the borrower, and the borrower or the person is not an excepted person. The amount of interest deduction shall be reduced by an amount calculated in accordance with the formula listed in DIPN13A.
    • "Excepted person" includes a market maker or a person who is chargeable to profits tax in respect of the interest income.
  41. s16(3): Definition of "Associate"
    • "Associate" in relation to a person means:
    • (a) where the person is a natural person:
    • - a relative of the person (eg. Spouse, parent, child ,brother or sister)
    • - a partner of the person;
    • - a partnership in which a person is a partner;
    • - any corp. controlled by the person, by a partner of the person or by a partnership in which the person is a partner;
    • - a director or principal officer of any such corp. as is referred to above
    • (b) where the person is a corp:
    • - any associated corp;
    • -any person who controls the corp and any partner of such person, and where either such person is a natural person, any relative of such person;
    • - any director or principal officer of that corp. or of any associated corp. and any relative of of any such director or officer;
    • - any partner of the corp. and , where such partner is a natural person, any relative of such partner;
    • (c) where the person is a partnership:
    • - any partner of the partnership;
    • - any corp. controlled by the partnership or by any partner thereof;
    • - any corp. of which any partner is a director or principal officer; or
    • - any director or principal officer of a corp. referred to above.
  42. s16A: specific deductions - Expenditure, Allowable
    • Expenditure: Initial and special payment / contribution under a RORS or a MPF scheme
    • Allowable Deductions: 20% per year from the year of assessment in which the expenditure was incurred - 5 equal instalments
    • Treatment of Refund/Sales Proceeds: Refund of contributions to RORS or contributions to a MPF scheme, to the extent that the sums were previously allowed as deductions, is taxable
  43. s16AA: specific deductions - Expenditure, Allowable
    • Expenditure: Mandatory contributions to MPFS in self-employment cases (eg. sole proprietor or partners in a partnership)
    • Allowable Deductions: Mandatory contributions to MPFS made by a self-employed person (sole proprietor or partner) not exceeding HK$17,500 (should not have been deducted under 26G of salaries tax or personal assessment)
    • Treatment of Refund/Sales Proceeds: N/A
  44. s16B: specific deductions - Expenditure, Allowable
    • Expenditure: Expenditure on R&D
    • Allowable Deductions: -General expenditure / expenditure on P&M is fully deductible in the year in which the expenditure was incurred, except expenditure on land or buildings which shall claim IBA; or -payments to an approved research institute for R&D related to that trade, profession or business.
    • Treatment of Refund/Sales Proceeds: Sale proceeds of rights in, or arising out of, the R&D are taxable (but restricted to the deduction previously allowed).
  45. s16C: specific deductions - Expenditure, Allowable
    • Expenditure: Payments for technical education
    • Allowable Deductions: Fully deductible in the year of assessment in which it was incurred
    • Treatment of Refund/Sales Proceeds: N/A
  46. s16D: specific deductions - Expenditure, Allowable
    • Expenditure: Approved charitable donations
    • Allowable Deductions: Allowable if the aggregate is not less than HK$100 and not exceeding 35% of the assessable profits.
    • Treatment of Refund/Sales Proceeds: N/A
  47. s16E: specific deductions - Expenditure, Allowable
    • Expenditure: Purchase of patent rights, know how (not purchased from an associate)
    • Allowable Deductions: Fully deductible in the year of purchase.
    • Treatment of Refund/Sales Proceeds: Sale proceeds of patent rights or rights to any know-how is taxable (restricted to deduction previously allowed)
  48. s16EA-EC: specific deductions - Expenditure, Allowable
    • Expenditure: Purchase of registered designs, copyrights, registered trade marks (not purchased from an associate)
    • Allowable Deductions:
    • s.16EA - Deduction is spread over 5 succeeding years on a straight-line basis (or a shorter period if the max. protection period of copyrights and designs expires in less than 5 years).
    • Deductions would not be allowed s.16EC:
    • • (transitional measure), where a licensee terminates a license early and acquires the IPRs at an unreasonable consideration; s.16EC(1)
    • • where the relevant IPRs are purchased wholly or partly from an associated party; s.16EC(2)
    • • where the relevant IPRs are under sale and lease back arrangements; s.16EC(4)(a)
    • • where the relevant IPRs are wholly or principally outside Hong Kong by a person other than the taxpayer; s.16EC(4)(b)
    • • the acquisition of the relevant IPRs were financed wholly or predominantly by a non- recourse debt s.16EC(4)(c)
    • Treatment of Refund/Sales Proceeds:
    • s.16EB - Sale of copyrights, registered designs or registered trademarks -> a balancing adjustment needs to be made (eg. balancing allowance/balancing charges)
    • Escape clause in s.16EC(5) and (6) - Sale and lease back arrangement s.16EC(4)(a) will not apply to deny a tax deduction if:
    • • the taxpayer purchases the relevant right from an end-user at a price not greater than the price paid to the supplier by the end-user; and
    • • the relevant right was purchased by the end-user from the supplier on or after 16 Dec 2011; and
    • • no deduction has been allowed to the end-user in respect of the relevant right before.
  49. s16F: specific deductions - Expenditure, Allowable
    • Expenditure: Expenditure on building refurbishment
    • Allowable Deductions: 20% per year of assessment from the year of assessment in which it was incurred.
    • s.16F not apply to the followings:
    • (i) the building or structure is used as a domestic building or structure;
    • (ii) the building or structure to be first used for the production of chargeable profits;
    • (iii) the building or structure to be used for a purpose different from that for which it was used immediately before.
    • Treatment of Refund/Sales Proceeds: N/A
  50. s16G: specific deductions - Expenditure, Allowable
    • Expenditure: Capital expenditure on the provision of a prescribed fixed asset
    • Allowable Deductions: Fully deductible (subject to apportionment) in the year of assessment in which the expenditure was incurred.
    • Prescribed fixed asset means:
    • - manufacturing P&M;
    • - computer hardware/ software and computer system.
    • s.16G not apply to the followings:
    • (i) a fixed asset in which any person holds rights as a lessee under a lease;
    • (ii) prescribed fixed asset under a hire-purchase agreement.
    • Treatment of Refund/Sales Proceeds: Sale proceeds of prescribed fixed asset are taxable (but restricted to the deduction previously allowed).
  51. s16H-K: specific deductions - Expenditure, Allowable
    • Expenditure: Capital expenditure on the provision of environmental protection facilities
    • Allowable Deductions:
    • - Fully deductible (for environmental protection machinery and environment friendly vehicle) in which the expenditure was incurred.
    • - 20% per year of assessment (for environmental protection installation).
    • Treatment of Refund/Sales Proceeds:
    • - Sale proceeds of environmental protection machinery and environment friendly vehicle are taxable (restricted to deduction previously allowed)
    • - Sale of environmental protection installation -> a balancing adjustment needs to be made (eg. balancing allowance/balancing charges)
  52. s17(1)(a): Non-allowable deductions
    Domestic or private expenses, including the cost of travelling between residence and place of business.
  53. s17(1)(b): Non-allowable deductions
    Expenses not expended for the purpose of producing chargeable profits.
  54. s17(1)(c): Non-allowable deductions
    Expenditure of a capital nature or any loss or withdrawal of capital.
  55. s17(1)(d): Non-allowable deductions
    Cost of improvements.
  56. s17(1)(e): Non-allowable deductions
    Sums recoverable under an insurance or contract of indemnity.
  57. s17(1)(f): Non-allowable deductions
    Rent and expenses for premises not used for producing chargeable profits.
  58. s17(1)(g): Non-allowable deductions
    Any tax payable under the IRO, except salaries tax paid on behalf of employees.
  59. s17(1)(h): Non-allowable deductions
    Ordinarily annual contributions made to a RORS or regular contributions made to a MPFS, which exceed 15% the total emoluments of the employee.
  60. s17(1)(i): Non-allowable deductions
    Any provision made for the payment in respect of a RORS or a MPFS in s.17(1)(h) which exceed 15% of the total emoluments of the employee.
  61. s17(1)(j): Non-allowable deductions
    Any provision made in respect of initial and special contributions to a RORS.
  62. s17(1)(k): Non-allowable deductions
    Any contribution made to a RORS or a MPFS, where a provision for payment of the sum has been made in a prior year of assessment and a deduction has been allowed for the provision.
  63. s17(1)(l): Non-allowable deductions
    Contributions made to the funds of; or payments made for the purposes of the operation of, an occupational retirement scheme other that a RORS.

    • s17(2): Non-allowable deductions
    • Salaries / Interest on capital or loans / MPF contributions (subject to s.16AA) in respect of a sole proprietor, partners and/or their spouses.
  64. s18C(1)(a): Basis period - Commencement of business
    If the first accounting period is less than or equal to 12 months and ended within the year the business commenced, the basis period for the year of commencement is from the date of commencement to the first accounting date.
  65. s18C(2): Basis period - Commencement of business
    When the first accounting period is less than or equal to 12 months and ended within the following year, there will not be any basis period for the year of commencement, and the assessable profit for the year of commencement is Nil.
  66. s18C(1)(b): Basis period - Commencement of business
    • When the first accounting period is more than 12 months, the basis period for the first two years of the business will be determined at the Commissioner's discretion.
    • Usually the basis period for the second year of assessment is a period of 12 months counted backwards from the end of the first accounting period while the basis period for the year of commencement is the remaining accounting period counted from the date of commencement.
  67. s18D(1): Basis period - cessation of business (New business)
    For businesses which commenced on or after 1 April 1974, the basis period for the year of cessation is from the date following the end of the basis period of the preceding year of assessment to the date of cessation. The basis period may exceed 12 months.
  68. s18D(2): Basis period - cessation of business (Old business)
    If the cessation is not due to the death of the proprietor and the business is transferred to a successor, the treatment is the same as the case of New Business.

    • s18D(2A): Basis period - cessation of business (Old business)
    • If the accounting date falls on a date other than 31 March and the cessation is due to the death of the proprietor, OR the business is NOT transferred to a successor, the basis period for the year of cessation is from 1 April in the year of cessation to the date of cessation plus the excess of (i) profits for the period from the end of basis period of the preceding year of assessment to the following 31 March (i.e. the drop-out profits) over (ii) drop-out profits of the equivalent period in 1974/75 (i.e. the transitional amount).
  69. s18(E)(1): Basis period - change of accounting date
    The Commissioner has the power to select the basis period for the year of change and to re-compute the assessable profits for the year preceding the year of change.
  70. s18(E)(1)(a): Change of accounting date
    Accounts are not made up to the corresponding day in the following year of assessment.
  71. s18(E)(1)(b): Change of accounting date
    Accounts are made up to more than one day in the following year of assessment.
  72. s18(E)(2)(b): Basis period - Change of accounting date (New business)
    • The basis period for the year of change may exceed 12 months. The IRD's objectives/principles for selecting the new basis period are:
    • (a) get on the new accounting date as soon as possible;
    • (b) ensure that no profit made over the life of the business is left out of assessment;
    • (c) accept a basis period of less than 12 months if there is compelling reason for the change; and
    • (d) otherwise, stick to a basis period of 12 months and some profits may be taxed twice.
  73. s18(E)(4): Basis period - Change of accounting date (Old business)
    • The normal basis period is limited to 12 months. The IRD's objectives/principles for selecting the new basis period are:
    • (a) get on the new accounting date as soon as possible; and
    • (b) ensure that the period left out of assessment should not be of "high profit".
  74. s19C(1): Treatment of loss relief
    A loss incurred by an individual (sole-proprietor) is carried forward and set off against future profits of the same trade carried on by the same individual; unless personal assessment is elected.
  75. s19C(2): Treatment of loss relief
    The part of the loss allocated to a partner who is an individual is to be set off against his/her share of future profits of the partnership; unless personal assessment is elected.
  76. s19C(4)-(5): Treatment of loss relief
    • If a corporation carrying on a trade, profession or business is also a partner in a partnership, any loss incurred in respect of its own trading may be set off against its share of the partnership profits for that year of assessment. The balance of any loss not yet set off is carried forward to set off, firstly, against the future profits of its own trade (if any), and secondly, against its share of the partnership's future profits.
    • Likewise, if the partnership incurs a loss, the share of such loss may be set off against any other profits of that corporation for that year of assessment. The balance of any loss is carried forward to set off, firstly against its share of the partnership's future profits (if any), and secondly, against the future profits of its own trade.
  77. s20A(1): Assessing a non-resident's liability
    Direct assessment on the non-resident.
  78. s20A(2): Assessing a non-resident's liability
    Assessment raised in the name of he non-resident's agent in Hong Kong.
  79. s20A(3): Consignment sales
    When a person sells goods in Hong Kong on behalf of a non-resident, he or she must furnish quarterly returns to the CIR showing the gross proceeds from the sales. The person is also required to pay 1% of the sale proceeds to the CIR. In practice, only 0.5% is payable.
  80. s20AC(1): Offshore fund exemption
    • A non-resident person derived profits from dealing in "specified transactions"
    • (a) carried out through or arranged by a "specified person" or
    • (b) the non-resident person is a "qualifying fund" are exempt from profits tax.
  81. s20AC(6): Definition of "qualifying fund"
    • A qualifying fund has to satisfy all of the following conditions:
    • (a) the number of investors (other than the originator and its associates) exceeds 4;
    • (b) the capital commitments made by investors exceed 90% of the aggregate capital commitments; and
    • (c) an agreement that the originator and its associates will not receive more than 30% of the net proceeds arising out of the transactions of the fund (after deducting the portion attributable to their capital contribution to the fund).
  82. s20ACA(1): Exemption to special purpose vehicle
    Special puipose vehicles ("SPV") (whether a Hong Kong or non-Hong Kong SPV, including interposed SPVs) are exempted from Hong Kong profits tax on gains on disposal of an excepted private company, provided certain conditions are met.
  83. s20ACA(2): Definition of "excepted private company"
    • Excepted private company means a private company incorporated outside Hong Kong that, at all times within a period of 3 years before the transaction which gives rise to the relevant profits is carried out:-
    • (a) did not carry on any business through or from a permanent establishment in Hong Kong; and
    • (b) falls within either one of the followings:
    • (i) it did not hold (directly/indirectly) share capital in one or more private companies carrying on any business through or from a permanent establishment in Hong Kong;
    • (ii) it held such share capital, but the aggregate value of the holding of the capital is equivalent to not more than 10% of the value of its own assets; and
    • (c) falls within either of the followings:
    • (i) it neither held immovable property in Hong Kong, nor held (directly/indirectly) share capital in one or more private companies with direct/indirect holding of immovable property in Hong Kong;
    • (ii) it held such immovable property or share capital, but the aggregate value of the holding of the property and capital is equivalent to not more than 10% of the value of its own assets.
  84. s20B: Withholding obligation on resident person
    • Withholding obligation on resident person paying or crediting certain payments to non-residents in the followings:
    • (a) sums chargeable under s.15(1)(a), (b) or (ba);
    • (b) sums which are derived from a performance given in HK by a non-resident entertainer or sportsman in his or her character as an entertainer or sportsman on or in connection with a commercial occasion/event
  85. s21B: Assessable profits from deemed trading receipts under s.15(1)(a), (b) or(ba)
    • The assessable profits from the deemed trading receipts under s15(1)(a) or (b) or (ba) are deemed to be either 30% or l 00% as follows:
    • (i) 100% if the payment is made by an associate AND the intellectual property was previously owned by a person carrying on business in Hong Kong;
    • (ii) 30% for all other cases
  86. s26(a): Sums specifically exempt from profits tax
    Dividends from corporations chargeable to profits tax is exempt from profits tax.
  87. s26(b): Sums specifically exempt from profits tax
    Profits already charged to profits tax in the name of another person. Eg. a corporate partner's share of a partnership's profits would not be subject to profits tax again as that part of the profits has been duly assessed in the name of the partnership.
  88. s26A: Sums specifically exempt from profits tax
    Interest on Tax Reserve Certificates. Interest/profit on sale of Government Bonds, Exchange Fund debt instrument, HK dollar denominated multilateral agency debt instruments, long term debt instruments are exempt from profits tax.
  89. s33A: Building/structure - allowance
    Annual allowance of 4% is granted for every year of assessment in which the building or structure is in use as a commercial building or structure at the end of the basis period.
  90. s34(1): Building/structure - allowance
    Initial allowance of 20% is granted for the year of assessment in the basis period for which the expenditure is incurred, even though the building or structure is not yet in use as an industrial building or structure.
  91. s34(1) proviso (b): Building/structure - allowance
    If the building or structure does not qualify as an industrial building or structure when it is first brought into use, any initial allowance already given will be withdrawn by an additional assessment.
  92. s34(2): Building/structure - allowance
    Annual allowance of 4% is granted for every year of assessment in which the building or structure is in use as an industrial building or structure at the end of the basis period.
  93. s35: Building/structure - allowance
    Balancing adjustment (balancing charge or balancing allowance) in respect of a building or structure may arise if the relevant interest in the building or structure is sold/demolished/destroyed.
  94. s33A(2)/s34(2)(b): Used building (CBA/IBA) - AA
    • Where a taxpayer purchased a used building which has been used at any time before, the AA to the purchaser shall be computed as follows:
    • AA=Residue of expenditure after sale x (1 / No. of years from the year of assessment in the basis period for which the sale takes place to the 25th year after the year of assessment in which the building or structure was first used).
  95. s35(b)(i): Unused building (IBA) - Deemed expenditure determination
    Ifthe industrial building is purchased from a property developer, the deemed capital expenditure is equal to the net price (excluding the land price) paid by the purchaser.
  96. s35(b)(ii): Unused building (IBA) - Deemed expenditure determination
    Ifthe industrial building is purchased from a person other than a property developer, the deemed capital expenditure is equal to the lesser of the actual cost of construction and the net price paid by the purchaser.
  97. s37A: Hire purchase assets - Depreciation allowances
    • Assets acquired under hire purchase agreement:
    • (i) Initial allowance of 60% is granted on the capital portion of instalments made during the basis period
    • (ii) Annual allowance is granted at the appropriate rate (10%, 20% or 30%) on the reducing value of the asset in use at the end of the basis period
  98. s38A: Assets sold together for one price
    When assets are sold together for one price and without specifying in detail the consideration in respect of each individual asset sold, the CIR is empowered to allocate a price to each individual asset sold.
  99. s38B: Assets sold between related parties
    Where an asset is sold not at arm's length basis, the CIR shall determine the true market value of the asset transferred and the value so determined is deemed to be the sale price for the purposes of calculating any allowance or charges.
  100. s39B(1): P&M - Depreciation allowances
    The annual allowance is given at the appropriate rate (10%, 20% or 30%) on the "reducing value" of the pool.
  101. s39B(2): P&M - Depreciation allowances
    • If the asset was previously acquired for private use and is now transferred to the relevant pool for business purposes, no initial allowance is granted as no capital expenditure is incurred.
    • Annual allowance is to be computed based on the written down value of the asset added to the pool (i.e. cost of the asset less notional amount of annual allowances for the period of non-business use).
  102. s39D: Deduction from pool
    The aggregate of any sale, insurance, salvage or compensation money in respect of any plant and machinery shall not exceed the capital expenditure incurred on the provision of plant and machinery.
  103. s40(1): "Qualifying trade" interpretation
    • "Qualifying trade" means:
    • (i) a trade earned on in a mill, factory or similar premises;
    • (ii) a transport, tunnel, dock, water, gas or electricity undertaking or a public telephone or telegraph service;
    • (iii) a trade consisting of the manufacture of goods or materials or the subjection of goods or materials to any process;
    • (iv) a trade consisting of the storage of goods or materials:
    • - which are to be used in the manufacture of other goods and material;
    • - which are to be subjected in the course of a trade to any process; or
    • - on their arrival into Hong Kong;
    • (v) a farming business; or
    • (vi) research and development in relation to any trade, profession or business
  104. s40(1): "capital expenditure" interpretation
    • "Capital expenditure" is defined to include:
    • - purchase price, freight, insurance, interest paid and commitment fees incurred in respect of a loan made for the sole purpose of financing the provision of P&M, delivery and installation costs,
    • - and capital expenditure on alternation to an existing building incidental to the installation of that P&M,
    • - but exclude expenditure which is reimbursed by way of or attributable to any grant, subsidy or similar financial assistance
  105. s87: Sums specifically exempt from profits tax - Exemption Order 1998
    • With effect from 22 June 1998, interest on local bank deposits received by or accrued to companies other than FIs (incorporated or unincorporated), after deduction of all allowable outgoings and expenses incurred in producing such interest, is exempt from the payment of profits tax under tile Exemption Order 1998.
    • However, the exemption does not apply to:
    • (i) interest income of Fis,
    • (ii) interest on deposits which is used to secure or guarantee money borrowed from a FI, if the borrowing fulfils s.16(1)(a) and any of the conditions in s.16(2)(c), (d) or (e), whereas s.16(2A) does not apply.

Card Set Information

Author:
yhliuaa
ID:
331886
Filename:
Profits tax
Updated:
2017-06-02 13:43:01
Tags:
Profits tax
Folders:

Description:
Profits tax
Show Answers:

Home > Flashcards > Print Preview