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Completion of Profits Tax Returns


Special Points to Note 

1. Financial Statements Prepared in Foreign Currencies
   
  All amounts must be shown in Hong Kong dollars (excluding cents).
   
 

If the financial statements are prepared in foreign currencies, convert the amounts into Hong Kong dollars before completion and state the conversion rate used.

   
  The exchange rate of the major currencies are available here.
   
2. Assessable Profits or Adjusted Loss
   
 
The Assessable Profits or Adjusted Loss must be the figure before adjustment of any loss brought forward from prior years.
   
3.
Emoluments, interest on capital etc. paid to the proprietor (or spouse) / any partner (or spouse) from the business
   
  The information must be provided in the appropriate items.
   
 
(Read item (2)(a) in Part 1 of Section G of Notes and Instructions - Form BIR52. Such amount must be adjusted)
   
4.
Personal Particulars of Proprietor or Partners and Allocation of Profits / (Loss)
   
  When filling in the names of the proprietor or partners, enter the surname first.
   
  Election for Personal Assessment
 
  • For the proprietor or partner who wishes to elect for personal assessment, Item 6.2 in BIR52 must be completed with a "tick".
  • Election for personal assessment by the proprietor or partner should be made in Tax Return - Individuals (BIR60).
  • If the proprietor or partner who is required to complete a BIR60 but does not make a valid election in the BIR60, the election made in Item 6.2 in BIR52 will be disregarded and profits tax demand note may be issued if it is a profits case.

 

 
The allocation of assessable profits or adjusted loss among partners should be entered in Item 6.2 in BIR52. This is required, even if the proprietor or partner does not elect for Personal Assessment. The total allocation of assessable profits or adjusted loss must be equal to the amount in Item 1.1 or 1.2 in BIR52.
   
5. Small Corporation / Small Business
   
 
A company is regarded as a Small corporation / Small business if it satisfies ALL the following conditions in the relevant year:-
  (i) Its gross income does not exceed HK$2,000,000;
  (ii)
It has not paid or accrued to a non-resident person any sum for the use of intellectual property specified in section 15(1)(a),(b) or (ba) of the Inland Revenue Ordinance ("IRO");
  (iii)
It does not have any deemed assessable profits pursuant to section 20AE and/or 20AF of the IRO;
  (iv)
Its Assessable Profits / Adjusted Loss does not include any interest, profits / loss arising from "short term debt instruments" or "medium term debt instruments" as defined in section 14A(4) of the IRO nor include any qualifying profits of a qualifying corporate treasury centre as defined in section 14C of the Inland Revenue Ordinance, which is assessable at one-half of the tax rate;
  (v)
It does not claim any tax relief pursuant to an arrangement for avoidance of double taxation specified under section 49(1) or 49(1A) of the IRO;
  (vi)
It has not obtained an advance ruling on any of its tax matter in relation to that year of assessment;
  (vii)
It does not claim debt treatment for an arrangement as "an originator" or "a bond-issuer" of a specified alternative bond scheme under section 40AB and Schedule 17A of the IRO; and
  (viii)
It does not claim deduction for distribution arising from regulatory capital securities for the relevant year.
   
 
For small corporations, when completing BIR51, the name of the auditor firm and the date of the Auditor's Report must both be stated if the accounts are required to be audited by law. Otherwise the return will be considered as invalid.
   
 
In the following situations, taxpayers would be treated as submitting incorrect return and would be potentially liable to heavy penalties: -
  (i)
If a company claims that it is a small corporation or small business, but it is subsequently found to have not satisfied the conditions for being so.
  (ii)

If a company claims that it has prepared the Supporting Documents before the completion of the Return but, in fact, it has not done so.

   
 
The Department will select randomly some small corporations / businesses and require them to produce Supporting Documents for examination.
   
6. Basis period
   
 
You should tick the box "Yes" only if there is a change of accounting date, that is, financial statements are made up to a date different from that of last year (for example, financial statements for last year were made up to 31 March but financial statements for this year were made up to 30 June). Please state on a separate sheet the reasons for the change of accounting date.
   
7. Financial Data
   
 

If any items are not shown in the financial statements, simply insert "0". There should be no amendment to any of the items stated. For example, do not change "Purchases" to "Cost of Goods Sold".

   
8. Interest Expense
   
 
Details of the interest paid or payable, including the name and address of the lender, his relationship with the taxpayer, the purpose for which the loan was obtained, any security given to the lender and the specific condition under section 16(2) of the IRO which the taxpayer relies on for the claim for deduction must be given on a separate sheet.
   
 
Hire purchase interest and mortgage loan interest must be included as part of the interest expenses paid.
   
 
   

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Format specifications for Supporting Documents accompanying Profits Tax Return

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FAQ [BIR51 & BIR52]

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FAQ [BIR54]

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Average Exchange Rates of Major Foreign Currencies

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Rates of Depreciation

See Appendix A to C of DIPN 7 (Revised): Machinery and Plant - Depreciation Allowances.