All expenses incurred for business income are tax deductible. Be sure to keep the relevant supporting documentation to prove that these expenses were incurred for taxable profits. Failure to meet the Hong Kong tax requirements for deductible items may result in a fine of HK$10,000 and payment of three times the amount of unpaid tax.
Common deductible expenses include:
- Cost of goods sold
- The cost of providing services
- Office, warehouse and shop rental costs
- Utility expenses related to business operations, such as water, electricity, telephone, air conditioning, and land taxes
- Repair and maintenance costs for industrial equipment, machinery, or items
- Transportation costs
- Employee salaries, allowances, bonuses, benefits, severance pay, and long service payments
- Employer’s Mandatory Provident Fund (MPF) contributions to employees
- The maximum deduction for Mandatory Provident Fund contributions made by self-employed persons or partners of sole proprietorships or partnerships is HK$18,000 per person
- Housing allowance rent or rent allowance
- The cost of registering a trademark, design or patent
- All maintenance costs associated with the business
- All insurance costs related to the business, such as workers’ compensation insurance
- Entertainment and hospitality expenses
- Professional fees, including accounting, company secretarial and auditing fees
- Capital expenditures for the purchase of specified intellectual property
- Research and development expenses, including market research and business or management research
- Bad and doubtful accounts (included as income at the time of subsequent recovery)
- Donations to approved charitable organisations with a minimum total donation of HK$100 not exceeding 35% of the adjusted taxable profits
- Special Deductions :
– Capital expenditure on building renovations, deducted evenly over five years from the year of payment
– Purchases of machinery and industrial equipment used in manufacturing are deducted in full in the year of expenditure
– Purchases of computer hardware and software, deducted in full in the year of expenditure
– Purchase of eco-friendly machinery and deduct it in full in the year of expenditure
– Purchase environmental facilities and distribute the deduction evenly over five years starting from the year of expenditure
– Purchase of eco-friendly vehicles and deduct the full amount in the year of expenditure
Non-deductible expenses:
- Personal or private expenses
- Capital expenditures or losses
- Expenses incurred for the purpose of generating taxable profits
- The expenditure is not for taxable profits
- Remuneration, interest, or interest on loans paid to sole proprietorship owners or their spouses (for sole proprietorships), partnership partners or their spouses (for partnerships).
- Non-mandatory MPF contributions (excluding contributions specified under section 16AA of the IRO)
Depreciation of fixed assets:
Fixed assets are assets that are purchased by a business for a long period of time and are not easily converted into cash. Such as land, buildings, machinery, and equipment. These assets typically have a long lifespan, providing economic benefits to the business during their use.
Common categories of depreciation of fixed assets include air conditioners, machinery and equipment, automobiles, computers, printers, tables, cabinets, etc. Office supplies such as stationery, paper, ink, snacks are usually not considered fixed assets as they are consumables with a short useful life.
Depreciable assets qualify for an initial tax deduction (60% of the cost of the asset) and depreciation amounts are calculated at an incremental decrease in value of the asset at 10%、20% and 30% rates for each subsequent year. Assets with the same depreciation rate will be included in the same calculation.
Expenses deductible by the IRD https://www.ird.gov.hk/chi/tax/bus_pft.htm#a06
