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Frequently ask questions - Two-tiered Profits Tax Rates Regime

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 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.

Q:
Which taxpaying entities would qualify for the two-tiered profits tax rates?
A:
All entities with profits chargeable to Profits Tax in Hong Kong would qualify for the two-tiered profits tax rates, except those with a connected entity which is nominated to be chargeable at the two-tiered rates. See Q3 below.

Q:
Which taxpaying entities would not qualify for the two-tiered profits tax rates?
A:
If, at the end of the basis period of the entity for the relevant year of assessment, the entity has one or more connected entities, the two-tiered profits tax rates would only apply to the one which is nominated to be chargeable at the two-tiered rates. The others would not qualify for the two-tiered profits tax rates. Further, if a corporation has made an election under section 14B(2)(a) (qualifying professional reinsurance business and authorized captive insurance business), section 14D(5)(b) (qualifying corporate treasury centre), section 14H(4)(b) (qualifying aircraft lessor) or section 14J(5)(b) (qualifying aircraft leasing manager), the corporation would not qualify for the two-tiered rates.

Q:
What is an entity?
A:
An entity means -
(a) a natural person;
(b) a body of persons; or
(c) a legal arrangement, including ?
(i) a corporation;
(ii) a partnership; and
(iii) a trust.

If a natural person carries on more than one sole proprietorship business, the person is taken to be a separate entity in relation to each sole proprietorship business.

Q:
What if a taxpaying entity incorrectly declares in its tax return that it has no connected entity or that no other connected entity has made an election for the two-tiered profits tax rates?
A:
Heavy penalties may be imposed for making an incorrect return without a reasonable excuse. Additional assessments will be raised in accordance with the provisions of the IRO on the taxpaying entity on the basis that the two-tiered profits tax rates do not apply.


If you wish to obtain more information or assistance, please visit the official website of Kaizen CPA Limited at www.kaizencpa.com or contact us through the following and talk to our professionals:
Email: info@kaizencpa.com,  enquiries@kaizencpa.com
Tel: +852 2341 1444
Mobile : +852 5616 4140, +86 152 1943 4614
WhatsApp/ Line/ Wechat: +852 5616 4140
Skype: kaizencpa


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