So you’ve just received your first Profits Tax Return and Employer’s Tax Return from the Inland Revenue Department, and you’re super excited to get started! Sound familiar? Unlikely. But filing your Profits Tax Return and Employer’s Tax Return does not have to be a chore. In this article we’re going to summarize some main points, you’ll want to keep in mind to make the process less daunting and to avoid any unnecessary penalties!
Profits Tax Return vs. Employers Tax Return (and Nil Filing)
Firstly, let’s clarify the difference between the Profits Tax Return and the Employers Tax Return. The Profits Tax Return is for reporting taxable profits that a Hong Kong company has made during a financial year, whereas the Employers Tax Return is for reporting any payments a company has made to directors and/or employees within the period from April of the previous year to March of the year the return is issued. With that said it is important to clear a misconception that a lot of people seem to have, which is that you don’t need to file the Profits Tax Return if you haven’t done any business since incorporating and neither do you need to file the Employer’s Tax Return if you have no employees. Be aware that in both cases, you are still required to file a ‘Nil’ return.
Deadlines and Who Can Do It?
The Profits Tax Return:
You will receive your first Profits Tax Return roughly 18 months from the incorporation date of your company, and you must submit it within three months from the date of issue. But for subsequent years you will only be given one month to do the filing every 12 months. Although, you can request for an extension which will depend on the closing date of your company accounts.
Where business has already commenced, you must appoint a CPA to help you prepare audited accounts which will be presented to the IRD with the Profits Tax Return for filing. While as mentioned above if you haven’t commenced business you will still need to file a ‘Nil’ tax return which if you know how to, you can file yourself. Noting that, although you need not provide audited accounts with your ‘Nil’ tax return you should still continue to audit your accounts as the IRD may request them. For more information on how to go about obtaining well-audited accounts check out our other article on the subject here.
The Employer’s Tax Return:
Normally the IRD will send out the Employer’s Tax Return in April each year, and it must be filed within one month from the date of issue.
When filing the Employer’s Tax Return, you will need to fill up an individual return for each employee in your company. If you know how to do it, you can prepare and file the Employer’s Tax Return yourself. Otherwise, you can obtain the assistance of a service provider to avoid mistakes which could cost you time and money. Whichever option you choose, remember, you must file your Employer’s Tax Return even if you have no employees and will file a ‘Nil’ return as aforementioned.
Paper Filing vs. Online Filing
If you are going to submit the return by paper, the IRD requires that you present them with the original paper return sent to you. This goes for both the Profits Tax Return as well as the Employer’s Return.
As for online filing, technically you can file the Profits Tax Return online, however, it is not common practice so, few, if any CPAs offer to do it. In any event, because auditing must be done to file the Profits Tax Return, your CPA will be the one managing the filing and so whether filing by paper or online, it is of no real consequence to you.
While for the Employer’s Return, either you can do it or your service provider (if they offer the service) can assist you with the same.
To be able to file online, however, note you will need an individual’s eTAX account which will allow you to digitally sign your returns. You can apply for an eTAX account yourself, or you can ask a service provider to help.
Late Filing = Penalties
It might be obvious, but it is important to point out that if you file your returns late, you will have to pay the related penalties. Be wise, the IRD are fair, giving plenty of notice and reminders and some service providers are too (although some are not…). Take advantage of this, don’t wait until you receive the penalty notice, act as soon as you receive the Profits Tax Return and Employer’s Tax Return.
In case you’ve already received the penalty notice but believe you have a good reason for not having filed the return on time, you can apply to the IRD to waive the penalty.
Conclusion: Don’t Wait, Act!
As mentioned in our last article, there are not many requirements for Hong Kong companies to adhere to but what few there are must be fulfilled. As the saying goes, don’t bury your head in the sand! Keep an eye on the emails you receive from your service provider, read them carefully and follow the instructions provided. Unless your service provider did not do their job failing to inform you of the necessary requirements, at the end of the day, whether you get those returns filed is your responsibility and your concern. Having said that, choosing a decent service provider in the first place will save you a lot of headache.
Need help to file your Profits Tax Return or Employer’s Tax Return? iNCUBEE | LCCS can help!
Or feel free to contact us. The iNCUBEE | LCCS Team are here to help.