Tax Planning and Filing
Our experienced Certified Public Accountant with up-to-date regulatory knowledge will assist you to meet compliance obligations, mitigate your tax risks, and provide practical tax solutions to help you move your business forward.
FAQs
Taxpayers are usually issued annual tax returns (Profits tax return to corporations in early April and individual tax return in early May) and are required to report all income from the various sources subject to profits tax, salaries tax or property tax. A married couple not wishing to be assessed separately may elect a combined assessment of their income from all sources under Personal Assessment.
Profits, property and salaries tax all operate under a system of prepaid tax, known as provisional tax. The provisional assessment for a tax year is an estimate, normally based on the preceding year’s assessment, and is payable in two instalments: one equal to 75% of the preceding year’s tax liability, usually payable in the final quarter of the relevant tax year, with the remaining 25% payable three months later. When the actual income for the tax year is determined, a final tax assessment is issued, giving credit for provisional tax already paid. The final tax assessment is combined with a provisional tax assessment for the following year.
If you disagree with your tax assessment, you may lodge an objection and appeal within one month after the date of issue of notice of assessment.
Filing an Objection
If you wish to dispute the assessment from the Inland Revenue Department (IRD), you must lodge a notice of objection in writing (Form IR831 or via eTAX) to IRD stating precisely the grounds of the objection within the prescribed time limit. Late objections will only be considered due to absence from Hong Kong, sickness or other reasonable causes.
Payment of Tax or Standover of Tax
Notwithstanding any notice of objection or appeal lodged by you, you must pay the tax on or before the date(s) specified in the notice of assessment, unless the Commissioner of Inland Revenue (the Commissioner) orders that the payment of tax or any part of it be held over pending the result of such objection or appeal.
Processing of Objection Cases
After consideration of the fresh and further information, a revision of the assessment/the Commissioner’s written determination may be issued to you within a reasonable time, stating the determination with reasons.
Further Appeal
If you wish to further appeal against the determination of the Commissioner, you should do so in writing to the Clerk of the Board of Review within 1 month after the transmission of the Commissioner’s written determination, together with your statement of the grounds of appeal. The onus of proving that the assessment is excessive or incorrect is on the appellant. After hearing the appeal, the Board may reduce or annul the assessment, or otherwise order the appellant to pay a sum not exceeding $25,000 as costs to the Board.
If either the appellant or the Commissioner is dissatisfied with a decision of the Board, he may further apply to the Court of First Instance of the High Court, by summons, within one month after receiving the Board’s decision, for leave to appeal against the Board’s decision on a question of law. The Court may make such orders including costs.
Tax Planning
Tax planning is a legal and ethical approach to minimize tax liability through permitted deductions and exemptions.
Tax Evasion
Though the Ordinance does not contain a definition of “tax evasion”, the concept of “evasion” involves some deliberate act on the part of the taxpayer (e.g. exploiting loopholes in tax laws or fraudulent practices to reduce tax burden).
Under IRD’s Departmental Interpretation and Practice Notes No. 11, the term “evasion” includes the following:
– deliberate non-lodgement of a return;
– deliberate understatement of income or over-claiming of deductions;
– understatement of income or over-claiming of deductions owing to ignorance of taxation obligations (even if without any conscious intention to do so); and
– overly aggressive tax planning.
The Field Audit and Investigation Unit of IRD investigates cases where tax evasion is suspected. IRD is committed to combating tax evasion strenuously, and heavy penalties may be imposed. The taxpayer, if lacking the relevant skills in taxation matters, should recognize that it is sensible to engage the services of a tax representative.
The Field Audit and Investigation Unit within IRD is primarily responsible for the audit and investigation of cases where tax evasion is suspected.
Tax evasion according to IRD includes deliberate non-lodgement of a return, deliberate understatement of income or over-claiming of deductions, and overly aggressive tax planning. The lodgement of an incorrect return, without reasonable excuse, is an offence under the Ordinance where heavy penalties will be imposed.
IRD uses a computerised Assess First and Audit Later (AFAL) system for screening tax returns for automated assessment. Returns not meeting the pre-set criteria for automated assessment are screened manually by assessing officers to determine whether they should be subject to in-depth examination prior to assessment.
The AFAL system is also programmed with parameters (e.g. compliance trends and emerging business practice) to identify potential high yield tax avoidance and evasion cases. Cases selected will be allotted to the assessing officers to conduct “desk audit”, to the field auditors to conduct “field audit” or to the investigators to conduct an in-depth “investigation”.
It should be kept in mind that the degree of co-operation exhibited by a taxpayer in a field audit or investigation case will generally have a bearing on the amount of penalty imposed. The taxpayer, if lacking the relevant skills in taxation matters, should recognise that it is sensible to engage the services of a tax representative to carry out the work entailed.
More information on IRD’s Departmental Interpretation and Practice Notes No. 11 “Field Audit and Investigation” can be found at https://www.ird.gov.hk/eng/pdf/dipn11.pdf.