T: (852) 2669 2966
M: (852) 9440 1632
Frequently Asked Questions
01 Q:What are the two-tiered profits tax rates regime?
A: The Inland Revenue (Amendment) (No. 3) Ordinance 2018 was enacted on 29 March 2018. The amendment ordinance has introduced two-tiered profits tax rates for corporations and unincorporated businesses by lowering the tax rate for the first $2 million of assessable profits with effect from the year of assessment 2018/19. However, for two or more connected entities, only one of them may elect the two-tiered profits tax rates.
02 Q:What are the two-tiered profits tax rates?
A: Under the two-tiered profits tax rates regime, the profits tax rate for the first $2 million of assessable profits will be lowered to 8.25% (half of the rate specified in Schedule 8 to the Inland Revenue Ordinance (IRO)) for corporations and 7.5% (half of the standard rate) for unincorporated businesses (mostly partnerships and sole proprietorships). Assessable profits above $2 million will continue to be subject to the rate of 16.5% for corporations and standard rate of 15% for unincorporated businesses.
03 Q:Can the two-tiered profits tax rates be applied to two or more sole proprietorship businesses owned by the same sole proprietor?
A: No. If a natural person owns two or more sole proprietorship businesses, the person is taken to be a separate entity in relation to each sole proprietorship business. The application of the two-tiered profits tax rates will be restricted to only one of the sole proprietorship businesses which has made an election. Other sole proprietorship businesses (and other connected entities) would be subject to Profits Tax at the rate of 15% or 16.5%, as the case may be.
04 Q:How is the threshold of $2 million applied to the partners in a partnership chargeable at the two-tiered profits tax rates?
A: Profits Tax will be chargeable on the first $2 million of assessable profits at the lower rate of 7.5% or 8.25% (for a corporate partner's share of assessable profits). Assessable profits above the threshold will be subject to the higher rate of 15% or 16.5% (for a corporate partner's share of assessable profits). Where applicable, the threshold of $2 million will be apportioned amongst the corporate partners and non-corporate partners in accordance with their profit sharing ratios.
05 Q:Record Keeping
A: Section 51C of the Inland Revenue Ordinance requires every person carrying on a trade, profession or business in Hong Kong to keep sufficient records in the English or Chinese language of his income and expenditure to enable the assessable profits to be readily ascertained. Such records shall be retained for a period of not less than 7 years. Failure to comply with the requirements of the Ordinance without reasonable excuse may be liable to a maximum fine of $100,000.