Filing Tax Returns in Hong Kong

Tax returns are a fundamental part of working at or running a business in Hong Kong. Everyone who earns money in Hong Kong is expected to file tax returns. Filing Tax returns in Hong Kong may prove to be a bit challenging. To that end, we are taking a look at how to file tax return in Hong Kong.

Filing Tax Return in Hong Kong

The body in charge of tax returns and receiving all tax returns filed in Hong Kong is the IRD. Once you fall under the taxpayer classification, then filling your tax returns to the IRD is mandatory annually. The assessment year is from April 1^st to March 31^st the following year. By May 1, the IRD will have sent individual tax returns out which are expected to be filled and returned in a month. Filing is compulsory, whether there is an income to report or not, as you can declare nothing.

Married couples have the option of filing as one single entity or as separate parties depending on which system provides favorable liabilities. When filing tax returns, all supplementary forms concerning the returns are to be attached along with them. Sole proprietors are not governed by the same time frame as others, as a sole proprietor has up to three months after being issued returns, before filing.

After the IRD has received your tax returns, you will receive a Notice of assessment. The notice of assessment serves as the tax bill, detailing your due tax. The provisional salaries tax for the following year will also be included in the Notice of assessment.

If for any reason, you have a problem with your tax bill, you have 30 days to file the complaint, along with your reasons. When there are no problems and everything is to your satisfaction, then you can proceed to pay the bill preferably before the deadline indicated.

How to complete the Tax Return

To file a tax return in Hong Kong, there are two options available. The first option is via paper (mail or in-person), and the second option is via the internet. Filing via paper has some limitations such as you can only file using the document sent to you. You cannot download a copy of the form on the internet and file. If you are mailing in the returns, you will also have to cover mail costs.

Filing via the internet offers several advantages including; an extended filing period (an extra month), saving the filing process and continuing at a more convenient time (up to 4-months grace period), and much more. The only problem with filing via the internet is that not everyone can use this method. Below are some of the criteria required for an individual to file a tax return via the internet:

• Will not claim an exemption on part or all of his/her salary.
• Is not a sole proprietor of a business with a gross annual income exceeding 2,000,000HKD for the assessment year.
• Has no advance ruling relating to tax matters in the assessment year.

Other criteria can still apply before an individual can qualify to file tax returns online in Hong Kong. Be sure to check with the IRD to determine whether you qualify or not. If you have trouble understanding the requirements, you can seek expert help from PremiaTNC. PremiaTNC  is available to assist you through the process with consultations and filing on your behalf.

Personal Particulars

To complete Tax returns, you will complete the tax return sent to you or as found on the IRD website. The section for personal particulars must be completed.  Fill or tick the boxes in the notification section as appropriate and any changes after filling must be communicated to the IRD in writing with a grace period of one month.

Property Tax

When reporting property tax, only properties that you own solely should be reported. For Tax returns for co-owned or joint properties, a separate return will be issued. When filing, be sure to produce in full, the address of the property in question, and the gross rental income for the tax year (not the monthly income). Where more than one property applies, be sure to state it, providing the appropriate details for all the properties in question.

Salary Tax

For salary tax, you need to report your gross income, before any deductions or exemptions apply. Other sources of income including benefits from your employers are to be reported as other income. If your employer has provided you with a residence, the property is taxable according to its rental value.

Incomes that are deductible are to be recorded only if they qualify as deductible under Hong Kong laws. Married couples can file jointly provided both parties have assessable income under salaries tax. Both parties are required to complete individual assessments and indicate their desire for a joint assessment.

Profits Tax

If you are a sole proprietor, regardless of whether the business had an activity or not, you will need to report it. Only sole proprietorships apply in this section, with partnerships or shareholder’s profits belonging elsewhere. You will need to provide all the necessary receipts and documents for transactions listed in your report. Businesses with under 2,000,000HKD  gross income won’t require documents to be attached, but you will still need to keep them.

Personal Assessment

You can opt for a personal assessment if you meet the criteria. Be sure to check the IRD website to determine if you qualify for a personal assessment before electing for it. If you opt for personal assessment, you will have to fill certain sections.

Ensure that all the information provided in your tax returns is accurate especially when you aren’t submitting the validating documents. You may be required to provide these documents at a later date and falsifications will be deemed as perjury, and attract severe penalties.

One thing you need to note is that reporting income to the IRD is for both employer and employee alike. While employers are required to report their employees’ income, the employee is still required to do the same. 

Which Expenses Are Deductible?

Some of your expenses are deductible, meaning, you don’t need to account for them when you are filing your tax returns. Some deductible expenses include Self-education, Donation to charity (approved donations), compulsory retirement schemes contributions, and Home Loan interest among others. Some personal allowances also fall under deductible expenses including Child allowance, Spousal allowance, Disabled dependent allowance, personal disability allowance, and dependent sibling allowance amongst others.

The documents relating to deductible expenses are not required when filing your tax returns. You should note that you still need to keep these documents in case the Internal Revenue Department (IRD) asks for them. Documents relating to deductible expenses should be kept for at least six years to comply with the law.

What happens if you don’t file your Tax Return on time?

Failure to file your tax returns at the appropriate time can attract a variety of punishments including Fines or Jail time. One common punishment will have you paying more tax. By failing to file your returns on time, the assessor is left to make assumptions, which don’t usually include exemptions and deductions. You will be left with a tax bill that is estimated, requiring you to pay more than you ordinarily would. Any penalties for failing to file returns on time are usually doled out by the commissioner of the IRD.

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