Unit 7 - THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS...

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U7_Profits_1 1 THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS BUSI 0018 – Hong Kong Taxation Unit 7 – Profits Tax (1) Coverage 1 Basic charge of profits tax 2 Definition of trade 3 Badges of trade 4 Definition of profession 5 Definition of business 6 Carrying on trade, profession or business in HK 7 Source of profits 8 DIPN No. 21: Locality of profits 9 Deemed trading receipts 10 Income excluded from scope of charge Learning Objectives After completing this unit, you should be able to: describe the scope of charge to profits tax identify chargeable person for the purposes of profits tax define trade, business and profession determine whether the activities involved are considered to be a trade carrying on in Hong Kong apply source principles to profits in different business environments determine whether profits are attributable to a Hong Kong source determine what receipts are deemed to be taxable trading receipts identify income specifically excluded from the charge to profits tax 1 BASIC CHARGE OF PROFITS TAX – SECTION 14 (1) s.14(1) of the IRO: “Subject to the provisions of this Ordinance, profits tax shall be charged for each year of assessment at the standard rate on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding profits arising from the sale of capital assets) as ascertained in accordance with this Part.” 1.1 3 Conditions under s.14(1) (1) the person must carrying on a trade, profession or business in Hong Kong; (1 st of 2-Limb Test) (2) the profits to be charged must be from such trade, profession or business carried on by the person in Hong Kong; and (3) the profits must be arising in or derived from Hong Kong (i.e. sourced in Hong Kong) (2 nd of 2-Limb Test)
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U7_Profits_1 2 1.2 Exclusion Profits arising from sale of capital assets Capital vs Revenue? 1.3 Profits tax rate Standard rate (for persons other than corporations): - 15% (up to 2002/03) - 15.5% (2003/04) - 16% (2004/05 to 2007/08) - 15% (2008/09 onwards) Profits tax rate for corporations: - 16% (1998/99 to 2002/03) - 17.5% (2003/04 to 2007/08) - 16.5% (2008/09 onwards) Concessionary rates: - Section 14A – 50% of tax rate for interest, profit on sale/ redemption/presentment derived from certain qualifying medium term debt instruments (e.g. debt instruments issued by Airport Authority) - Section 14B – 50% of tax rate for assessable profits derived from the business of reinsuring offshore risks as a professional reinsurer 6 1st Limb - carrying on a trade/profession/business in HK? Is there a ‘
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This note was uploaded on 02/23/2012 for the course BUSI 0018 taught by Professor C.ng during the Spring '11 term at HKU.

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Unit 7 - THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS...

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