General principles and deductible expenses for Hong Kong companies
Basic principles of deductible expenses:
According to section 16 of the Inland Revenue Ordinance of Hong Kong, expenses are generally deductible as long as they are incurred by the taxpayer when the chargeable profits are generated.
Common deductible expense items:
- The cost of purchasing goods
- The cost of providing services
- Rental expenses for offices, warehouses and shops
- Business-related water, electricity, and telephone bills
- Salaries, allowances, bonuses, benefits, severance payments and long service payments of employees
- Employer-employee MPF contributions
- Employee benefit expenses, including rent allowances
- The cost of registering a trademark, design or patent
- Bad debts to customers
- All business-related maintenance costs
- All business-related insurance premiums, such as workers’ compensation
- Social expenses
Non-deductible expenses:
- Household or private expenses
- Capital expenditures or losses
- Expenses not incurred for the purpose of generating assessable profits
- Remuneration, interest on capital, interest on loans, paid to the proprietor or the proprietor’s spouse, partner or partner’s spouse (depending on the form of the company).
- Non-mandatory MPF contributions (other than section 16AA of the Inland Revenue Ordinance)
Special Item Deductions:
- Expenses for building renovations
- Expenditure on the acquisition of machinery and plant for the manufacturing industry
- Expenses on the purchase of computer hardware and software
- Buy eco-friendly machines
- Purchase eco-friendly devices
- Buy eco-friendly vehicles
Depreciation of fixed assets:
Depreciation of fixed assets is a deduction method, and common categories include office equipment, air conditioning, machinery and equipment, automobiles, etc. The annual allowance is calculated based on the decreasing value of the asset and ranges from 10%、20% and 30% respectively. Individual assets are counted within the same aggregation group.
Allowances for commercial buildings and structures:
The allowance for commercial buildings and structures refers to office renovation costs, etc. The annual allowance is 4% of the cost of construction.
Tax deduction for donations:
Donations to recognised charities are deductible. There is a requirement that the aggregate of donations must not be less than HK$100 and not more than 35% of the assessable profits.
** It is important to note that these are general principles and specific tax planning and deductions may be subject to other specific conditions and restrictions. To ensure proper tax filing, it is recommended that you consult a professional tax advisor or accountant for up-to-date and specific advice on individual cases.
In addition, Hong Kong’s tax laws and related provisions may change over time, so it is best to check the latest tax rules and regulations before filing your tax return.
Section 16AA of the IRO
