FAQ : Completion of Profits Tax Returns

Frequently Asked Questions & Answers on Completion of Profits Tax Returns [BIR 54] issued on or after 1 April 2008

For the benefit of the tax paying public and their tax representatives, some frequently asked questions and their answers are listed below for general information and guidance.

Q1	BIR 54 asks the company to declare the assessable profits made by the non-resident person during the basis period for the year of assessment. Does "basis period" here refer to the basis period of the non-resident person?
A1	Yes. It does not refer to the basis period of the company.
Q2	The company does not know the accounting date (and therefore the basis period) of the non-resident person, can I use 31 March as the accounting date?
A2	Yes. For simplicity sake, you need not spend effort to ascertain the accounting date of the non-resident person.
Q3	In practice, the company finds it more convenient to use its own basis period for reporting sums such as royalty paid. Can I use the company's basis period (instead of 1 April to 31 March or the non-resident's basis period) in completing BIR 54?
A3	Yes. You should use this basis period consistently.
Q4	This year the company wants to use a basis period different from that used in past years. Is that a change of accounting date situation so that S.18E applies?
A4	Yes. You should explain in a separate sheet why a different basis period is used this year.
Q5	The assessable profits deeming rate for payments to non-resident persons on or after 1 April 2003 has been increased from 10% to 30%. Does this change affect sums referred to in section 15(1)(a), (b) and (ba) only?
A5	Yes.
Q6	The company has a 5-year licence agreement with a non-resident corporation. Royalty of $100,000 is payable quarterly in arrear. The company's own accounting date is 30 September. In the BIR 54 returns submitted the company uses 30 September as the accounting date. How the final tax for the year of assessment 2003/04 (basis period: 1.10.2002 to 30.9.2003) will be computed?
A6	The tax for the first two quarterly payments (31 December 2002 and 31 March 2003) is as follows: - $100,000 x 2 x 10% x 17.5% = $3,500 The tax for the last two quarterly payments (30 June 2003 and 30 September 2003) is as follows: - $100,000 x 2 x 30% x 17.5% = $10,500
Q7	During the year of assessment 2004/05, the company made payments to a non-resident person for the use of or right to use intellectual property outside Hong Kong. Should these sums be included in computing the returned profits for BIR 54?
A7	Yes, if the payments are made on or after 25 June 2004 and are deductible in ascertaining the assessable profits of the company.