All Hong Kong companies are required to report their assessable profits annually to the Inland Revenue Department (IRD) by submitting a Profits Tax Return (PTR) together with audited financial statements.
The IRD issues the PTR, usually on the first working day of April each year, and taxpayers are expected to complete and return these forms within one (1) month.
The IRD has recently stepped up its efforts to pursue HK companies for failure to submit their PTRs on a timely basis.
Potential consequences of failure to file a PTR
A failure to file a valid PTR to the IRD by the specified deadline without reasonable excuse can potentially lead to severe consequences, as follows:
- Prosecution – The IRD may instigate a prosecution by issuing a summons to the taxpayer or its designated representative to attend the Court.
- Compound offer – In lieu of prosecution, the IRD may compound the offence or assess an additional tax penalty not exceeding three times the amount of tax undercharged. The IRD will not prosecute if the taxpayer submits the completed PTR and accepts the compound offer within a specified time limit.
- Additional tax – The IRD has the power to impose additional tax, subject to a maximum amount that is up to three times the total amount of undercharged tax. The taxpayer can make a written representation within a specified explaining the reasons for the late filing for consideration by the IRD.
- Estimated tax assessment – The IRD may issue an assessment to profits tax that is based on its estimate of the amount of profits earned by taxpayer. The taxpayer may lodge an objection within one month of the issue date of estimated assessment, which must be accompanied by a completed PTR. If no valid objection is filed, the estimated assessment will become final and conclusive and the tax will become payable, even if it is higher than the actual tax payable. Settlement of estimated tax assessment does not mean the taxpayer has fulfilled the requirement to file a PTR. The IRD can issue further estimated assessments until the outstanding PTR is filed.