Preparing Profits Tax Computation
We usually act as our audit clients’ “Tax Representative” and prepare a document called “Profits Tax Computation” for submission to the Inland Revenue Department ("IRD"). Although the IRD has a format of this document on its website for taxpayers' reference, as far as we know, very few SME taxpayers will prepare the computation themselves because of the complexity of the matters.
It is our job to help clients to observe and comply all tax regulations, obtain the maximum tax benefits and allowances.
Completing Profits Tax Return (Form BIR 51)
A taxpayer who files an “incorrect return” - by omitting or understating anything which the Inland Revenue Ordinance requires to be stated - without “reasonable excuses” commits an offence. The Commissioner of the Inland Revenue Department has the power to levy an assessment of additional tax or prosecuting the taxpayer for such offence.
Taxpayers are advised to contact their tax representatives as soon as they receive any tax returns from the IRD so as to have them prepared and submitted promptly. Late filings may attract a heavy penalty, estimated assessment, or court summons.
Applying for extension
The IRD always requires tax returns to be completed and enquiries answered within a specific period of time, usually from 21 days to 3 months. Late return or reply may be subject to a fine or estimated assessment. In extreme cases, persistent late filing may trigger a tax investigation.
We may apply for a further extension in the capacity of your tax representatives in some cases and advise you on how to deal with some of the IRD’s enquiries.
Objection to assessment
When you receive a notice of assessment (you can tell whether it is a “normal assessment”, “estimated assessment” or “additional assessment” by referring to the small print on the “assessor’s notes” at the back of the notice of assessment) and do not agree to the amount assessed, you must lodge an objection in accordance with section 64 of the Inland Revenue Ordinance within one month after the date of the notice; Otherwise, the assessment will most likely becomes “final and conclusive”, i.e. you have to pay the amount assessed even it turns out that you would not have been liable to tax if a proper objection has been lodged. Sounds harsh? It can be. The IRD may even issue further assessments if you do not lodge any objection at all.
We advise you to contact us or the IRD as soon as you receive an assessment and do not know what to do about it.
Holdover of provisional tax
Provisional tax is a tax which the IRD assess you or your company needs to pay in the following year of assessment. You can apply for an entire holdover, or a reduction of, the provisional tax under several circumstances, one of which is when the assessable profits for the year of assessment concerned are, or are likely to be, less than 90% of that of the preceding year of assessment.
Similar to objection, a taxpayer is required to apply for a holdover within a period of time after the date of the notice, which is 28 days before the due date for payment of the provisional tax, or 14 days after the date of issue of the notice, whichever is the later.
Replying letters and queries from the IRD promptly
Some enquiries from the IRD are straight forward which taxpayers can simply handle on their own. You should, however, be cautious to those that seems lengthy or may have considerable tax implications such as concerns over capital or revenue nature of property transactions.
We will give you advice based on our experience and published tax cases of recent years.
Assistance on Employer’s Returns (Forms IR56A, 56B, 56E, 56F etc)
The IRD will issue Forms B.I.R. 56A and I.R. 56B to employers for filing the remuneration and pensions of their employees. These forms are required to be submitted within one month or penalty will be imposed. The IRD has published comprehensive explanatory note on these two forms. You can visit the IRD’s website or click here for a copy.
Assistance on Notification of Remuneration Paid To Persons Other Than Employees (Form IR 56M or Form I.R. 623)
If a company pays commission, fees or other remuneration to persons other than its employees or to unincorporated businesses, such as:
(i) local persons (Form IR 56M and Form IR 6036B)
- subcontractors exceeding HK$200,000 per year;
- consultants, agents, brokers, freelance artistes, entertainers, sportsmen or writers etc. more than HK$25,000.
Guidance from the Inland Revenue Department: Notes on how to complete Form I.R. 56M
(ii) non-resident persons
Where payments are made to non-residents with a brief period of service in Hong Kong, the sponsor or agent has to:
- notify the IRD immediately when the non-resident arrives in Hong Kong; and
- withhold an amount from payments made to the non-resident sufficient to produce the amount of tax due in accordance with sections 20A and 20B of the Inland Revenue Ordinance.
Field audit and tax investigation
Field audit and tax investigation usually take months, or years to settle. If you have received any protective assessments or interview request from the IRD, you should seek professional advice. We provide assistance in simple field audit cases, and usually refer complicated cases to tax experts.
Personal tax advice and compliance
Although personal tax advice could hardly be any professional firm’s core services, we do offer comprehensive review on our clients’ Individual Tax Returns, upon request, to make sure that provisions relating to personal tax allowances and exemptions, where applicable, are properly utilized.
The Inland Revenue Ordinance imposes various time limits for the above filings and applications. Hence, you should contact us as soon as you receive any tax letters, forms or assessments.
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