05 Profits Tax_Ans2

05 Profits Tax_Ans2 - BUSI 0018 Hong Kong Taxation Self...

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1 BUSI 0018 – Hong Kong Taxation Self Test Question – Profits Tax Computation Answer 2 Topgun Ltd Profits Tax Computation Year of Assessment 2007/08 Basis Period: Year Ended 31 December 2007 $ $ Net profit per account 1,595,000 Less: Non-taxable items Dividends 950,000 Interest income (80,000 + 50,000) 130,000 Decrease in general provision for bad debts 15,000 1,095,000 500,000 Add: Non-deductible items Depreciation 1,328,000 Donations 150,000 Legal and professional expenses 90,000 Proceeds of sale of patent 200,000 Profits tax paid 150,000 1,918,000 2,418,000 Less: Depreciation allowance 1,175,000 1,243,000 Less: Donations (not exceeding 25%) 150,000 Assessable profits 1,093,000 Profits tax payable at 17.5% 191,275* * Profits tax for 2007/08 is reduced by 75% or $25,000, whichever is the less. Therefore, the profits tax liability is $191,275 - $25,000 = $166,275
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2 Explanatory notes to some major items: (a) Interest income Interest income accrued to a corporation carrying on business in Hong Kong will be assessed under S.15(1)(f). The 'provision of credit’ test will apply here, i.e. to determine where is the originating cause of the interest income. If it is located in Hong Kong, it will be taxable; otherwise, it will be non-taxable. The interest income from Hong Kong Bank in USA is non-taxable since the provision
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05 Profits Tax_Ans2 - BUSI 0018 Hong Kong Taxation Self...

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