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Frequently Asked Questions & Answers on Completion of Profits Tax Returns [BIR54] issued on or after 1 April 2019

Introduction

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.

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General Issues

1.

Q:

The company is required to declare in BIR54 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?

A:

Yes. It does not refer to the basis period of the company.

2.

Q:

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?

A:

Yes. For simplicity sake, you need not spend effort to ascertain the accounting date of the non-resident person. However, if the non-resident person wants to claim the lower tax rate pursuant to the two-tiered profits tax rates or the respective double taxation agreement/arrangement, the basis period must refer to that of the non-resident person.

3.

Q:

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 BIR54?

A:

Yes. You should use this basis period consistently. However, if the non-resident person wants to claim the lower tax rate pursuant to the two-tiered profits tax rates or the respective double taxation agreement/arrangement, the basis period must refer to that of the non-resident person.

4.

Q:

This year, the company wants to use a basis period different from that used in past years. Is this a change of accounting date situation to which s.18E applies?

A:

Yes. You should explain in a separate sheet why a different basis period is used this year.

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Two-Tiered Profits Tax Rates

5.

Q:

What are the two-tiered profits tax rates and under what circumstances will a non-resident person be chargeable at two-tiered profits tax rates?

A:

For the years of assessment commencing on or after 1 April 2018, if an election is made on behalf of the non-resident person for two-tiered rates, you are required to state that for the year it had no connected entity carrying on a trade, profession or business in Hong Kong or no such connected entity elects to be so chargeable. To elect for two-tiered rates, tick “yes“ in Item 2.3 and provide confirmations, country code* of the jurisdiction of tax residence and tax identification number of the non-resident person in Item 2.4 and a complete list of the connected entities carrying on a trade, profession or business in Hong Kong in supplementary form (S1). You should note that the Assessable Profits of the non-resident person chargeable at the lower rate for the year should not exceed $2 million in total, including the Assessable Profits assessed in other agents’ names. For details, please refer to the Q & A for Two-tiered Profits Tax Rates Regime in this web site.

6.

Q:

If I have made an election for the non-resident person to be chargeable at two-tiered rates for the year of assessment due to incomplete information of connected entities, will I be prosecuted for making an incorrect statement?

A:

Section 80(2) of the Inland Revenue Ordinance provides that a person commits an offence if the person, without reasonable excuse, gives any incorrect information in relation to any matter or thing affecting his own liability (or the liability of any other person) to tax.

7.

Q:

What is the ISO 3166-1 Alpha 2 country code of the jurisdiction of tax residence of the non-resident person in Item 2.4.3 of BIR54? Where can I find it? How should I report if the non-resident person is the resident for tax purposes in more than one jurisdiction?

A:

Country code of ISO 3166-1 Alpha 2 is a two-letter country code defined in ISO 3166-1, part of the ISO 3166 standard published by International Organization for Standardization (ISO), to represent a country. For the up-to-date list of country codes, you may refer to ISO's web site (www.iso.org/iso-3166-country-codes.html). You should provide the jurisdiction of tax residence and tax identification number of non-resident person on a separate sheet of paper if the space is insufficient.

8.

Q:

What is the tax identification number (TIN) of the non-resident person in Item 2.4.4 of BIR54? Where can I find it?

A:

TIN is a unique identifier assigned by tax authority of a jurisdiction to a person (individual or entity) for the purposes of administering the jurisdiction´s tax laws. You are advised to ask the non-resident person to provide all the required information in Items 2.4.1 to 2.4.4 of BIR54. If you do not have such information, the non-resident person will not be charged at two-tiered rates. For more information about the current rules in relation to the issuance, structure, use and validity of each jurisdiction's TIN, please see the online support for the implementation of automatic exchange of information in tax matters in OECD's web site (www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-identification-numbers/).

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Supplementary Forms

9.

Q:

Do I have to complete all supplementary forms?

A:

No. You only have to complete the corresponding supplementary forms if you fall within the descriptions in Items 2.4.2 and 7.4 of BIR54. For further details, please refer to the FAQ for supplementary forms in this web site.

10.

Q:

The supplementary forms are not found in the Profits Tax return sent to me. Where can I get the forms?

A:

The Profits Tax return does not enclose with the supplementary forms. You need to download the relevant supplementary forms from Department's web site www.ird.gov.hk/e_pfr for completion.

11.

Q:

Can I file the Profits Tax return first and the supplementary forms later?

A:

The supplementary forms are part of the tax return that should be filed together with the Profits Tax return.