Proper tax filing is the first step to fulfill your tax duties but, an efficient tax strategy planning is always the means to be a tax-savvy entrepreneur. As your helpful tax advisor, BRIDGES has summed up some smart notes here for you to learn more :

1. Can Personal Assessment Reduce My Payable Tax?

For 2018/2019, the standard rate of Salaries Tax is still 15%, but under what circumstances will taxpayers enter the standard rate zone? Generally, your net chargeable income, i.e. assessable income after deductions and allowances, is charged at progressive rates. However if what you need to pay on the basis of your net chargeable income exceeds the tax charged at standard rate on your net total income, i.e. assessable income after deductions but before allowances, then you will pay the lower amount of tax.

Personal assessment is a form of relief if your income is also chargeable to Profits Tax or Property Tax (both at the standard rate: Profits Tax for limited company is 8.25%* from 2018/19; Profits Tax for unlimited company is 7.5%* from 2018/19; Property Tax remains at 15%). In other words, if you own a business or receive rental income, it could be advantageous to elect for personal assessment as your income chargeable to Salaries Tax, Profits Tax and Property Tax is aggregated, yet the effect varies from case to case.

From this total chargeable income, the following may be deducted under personal assessment:

1. Interest payable on money borrowed to acquire a property used for letting

2. Approved charitable donations

3. Elderly residential care expenses

4. Home loan interest (with an annual deductible amount up to HK$100,000)

5. Mandatory employee contributions to Mandatory Provident Fund schemes

6. Contributions to recognized occupational retirement schemes

7. Business losses incurred in the year of assessment

8. Losses brought forward from previous years under personal assessment

9. Personal allowances

* Under the new two-tier profits tax system commencing from 2018/19, the tax rate of Profits Tax for the first $2 million of profits will be halved to 8.25% for limited company and halved to 7.5% for unlimited company, and the original rate 16.5% for limited company and 15% for unlimited company will be kept for profits exceeding that amount.

** The 2018/19 Budget proposes substantial changes to Salaries Tax, and the most significant ones include [1] widening the marginal tax bands from HK$45,000 to HK$50,000; [2] increasing the number of tax bands from four to five; and [3] adjusting the progress tax rates of the corresponding tax bands.

2. As an Employee, How to Make Use of Housing Benefits for Tax Efficiency?

If your employer provides you with a place of residence, ‘rental value’ (RV) of it should be computed & added to income for tax assessment. By adopting the notional benefit RV, your tax could be substantially reduced. The RV is calculated at 4%, 8% or 10% of your total net income after deducting outgoings & expenses (excluding expenses of self-education), depending on the type of accommodation provided:

To ensure correct computation of the RV, it is advised to state the accommodation type provided and the relevant period to the IRD clearly. You may opt to substitute the ‘Rateable Value’ of the property for the RV, if to do so can reduce the amount of ultimate amount of tax to be paid. Also, if you are required to pay rent to the employer, that payment can be deducted to arrive at the RV which is called ‘rent suffered’.

3. Can I Apply for Offshore Claims If My Company Generates Profits Outside HK?

Yes, if your company is operating and generating all profits wholly outside HK, it is possible that your HK company can be claimed as ‘offshore business’. Several criteria need to be met to qualify for offshore claims, e.g. the terms of the purchase and sale contracts are negotiated and concluded with suppliers and customers outside HK, etc. With proper planning at the initial stage, such profits can be proved as not liable to HK Profits Tax. Once an offshore claim is filed, the IRD will request more detailed information, and you will need to be very well prepared for answering the questions within the given time period. If you need an experienced advisor to handle the whole process including corresponding with the IRD, please contact BRIDGES for more details.

4. I Am a Foreigner Living in HK and I Generate Part of My Profits Outside HK, Will There be Double Taxation?

The good news is that HK has entered into Comprehensive Double Taxation Agreements / Arrangement (DTAs) with a number of jurisdictions, which prevent double taxation between HK and international tax administrations by enforcing their corresponding tax laws. The covered jurisdictions include China, Japan, Canada, United Kingdom, France, Italy, Spain, Switzerland, Austria, South Africa, etc. In other words, if the part of your profits generated outside HK has been taxed by any of these countries already, you can apply for tax exemption for this part of the profits in Hong Kong.

5. If I Have No Employees Hired, Do I Still Need to File the Employer’s Return?

Whether the company has got any paid staff during the fiscal year or not, once the Employer’s Return is received, it is mandatory for the company to file it within the indicated time.

Please be noted that even though the company does not employ any staff, your identity as a Director will incur either Director’s fees or Director’s salaries (two ways to give remuneration to a Director), and both are taxable. Thus, you will need to report this to the IRD by filing the Employers’ Return, no matter how many staff was hired: a group of staff or only one ‘staff’ - yourself.