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【Entrepreneurs Must-Read】Hong Kong Profits Tax Guide 2024

Profit Tax Computation in Hong Kong and Deductible Items

In recent years, people's work patterns have undergone significant changes, with many becoming "slashers," freelancers, or entrepreneurs to diversify their income. This has also led to more difficulties when it comes to tax filing. OneStart has compiled essential tips for self-employed person and freelancers to help you easily tackle tax-related challenges.

Who qualifies as a self-employed person?

According to government definitions, if you earn income through buying and selling goods, providing professional or personal services without any employer-employee relationship, you will be considered as operating a business or profession, in other words, a self-employed individual. Since you earn income outside of an employer-employee relationship, self-employed person generally needs business registration.

Factors to Distinguish "Employee" from "Self-Employed Individual":

• Control over work procedures, time, and methods
• Ownership and provision of necessary equipment, tools, and materials for work
• Operation of a business and assumption of investment and management responsibilities
• Reasonable categorization as a member of the employer organization
• Authority to hire assistants to help with work
• Assumption of financial risks in the business
• Responsibilities for insurance and taxation
• Traditional structure and conventions in the industry or profession, etc.

Do self-employed person/freelancers need to report profits tax or salaries tax?

The type of tax self-employed person/freelancers need to report depends on the source of their income:

If your income comes from an employment, you will need to report salaries tax.

If your income comes from a personal business, whether you have registered a company, you will need to report profits tax.

Since self-employed person/freelancers often hold multiple positions, it is possible to be required to report both profits tax and salaries tax.

Methods for self-employed person / freelancers to file taxes

To declare the applicable tax items, you first need to fill out the corresponding tax return form based on your situation:

• BIR60: Sole proprietorship
• BIR51: Corporations (e.g. Limited companies)
• BIR52: Other than Corporations (e.g. Partnership businesses)
• BIR54: Businesses operated by non-Hong Kong residents
• IR56M: Compensation for Non-Employee Services (e.g. Consultants, Performers, etc.)

When filling out the profits tax return, taxpayers can compare the two tax calculation methods: i) Two-tiered profits tax and ii) Personal Assessment, and choose the lower tax liability as the basis. The Inland Revenue Department will also analyze the situation and calculate the tax liability based on the lower tax liability.

As self-employed person often have diverse sources of income, many need to pay both salaries tax and profits tax. If you find the tax filing process complicated, it is recommended to consider hiring a professional accountant to handle your accounts, relieving you of tax worries.

How do self-employed person / freelancers handle tax deductions?

In Hong Kong, various expenses incurred for the purpose of earning taxable profits can be deducted. The following are common deductible expenses:

• Employee salaries
• Rent, utilities, and telephone expenses for the place of business
• Registration fees for trademarks, designs, or patents

For more deductible expenses, please refer to Profit Tax Computation in Hong Kong and Deductible Items.

Do I not have to pay taxes if I haven't received a tax return?

According to regulations, even if self-employed person have not received a tax return issued by the Inland Revenue Department, if their personal income exceeds the basic tax exemption threshold of HK$132,000, they should actively request a tax return form from the tax authorities within 4 months after the end of the assessment period, by giving written notice.

Tax duties for self-employed person

As a self-employed person, you must fulfill the following tax responsibilities for the taxable profits earned:

• Keep sufficient business records for at least 7 years
• Prepare accounts based on your accounting records
• Fill out and submit tax return forms to declare business profits or losses
• Unless you have received a tax return form from the tax authorities, you should give written notice to the tax authorities within 4 months after the end of the assessment period of the tax year, stating that you need to be assessed for tax
• Notify the tax authorities within 1 month of the cessation of business
• Notify the tax authorities within 1 month of any change in your address
• Pay your taxes

Failure to comply with the relevant regulations, such as not submitting tax return forms, not submitting accurate tax information, or not keeping sufficient business records, may result in prosecution or fines.

總結

Self-employed person / freelancers often face more complex tax procedures than others, making it easy to overlook or violate relevant regulations, resulting in various losses. To avoid these troubles, you can hire a professional accountant to handle the related matters for you. OneStart Business Centre provides accounting, auditing, and tax filing services. Our professional team has many years of experience and is trusted by our customers. To learn more about our plans, please call 3575 6888 or WhatsApp OneStart Business Consultant for more information.

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