Paying tax on profits is a given – but did you know there are numerous ways to reduce your company’s tax liability?
For business owners, tax expenditure is a critical component of cost management. While paying tax is a legal obligation, enterprises can often reduce their tax burden legally through strategic tax arrangements and a deep understanding of regulations, thereby enhancing cash flow flexibility.
Two-Tiered Profits Tax Rates
Under the two-tiered profits tax rates regime, the tax rate for the first $2 million of assessable profits is reduced to 8.25% for corporations and 7.5% for unincorporated businesses (primarily partnerships and sole proprietorships). Profits exceeding $2 million continue to be taxed at the standard rates of 16.5% for corporations and 15% for unincorporated businesses.
Other Deductible Business Expenses
The scope of deductible business expenses is quite broad. Costs such as company vehicle maintenance, fuel, and transportation can be claimed on a reimbursement basis. Furthermore, assets purchased in the company’s name—including properties and vehicles—can also serve as tax-deductible items.
Specific Deductible Items for Profits Tax
| 項目 | 內容 |
|---|---|
| Building Refurbishment | Capital expenditure incurred on the refurbishment of commercial buildings can be deducted in equal installments over 5 years, starting from the year the expenditure was paid. |
| Plant and Machinery | Capital expenditure on machinery and plant used in manufacturing, as well as computer hardware and software, can be fully deducted in the year of purchase. |
| Environmental Protection Facilities | Expenditure on environmental protection machinery and installations is eligible for a 100% deduction in the year it is incurred. |
| Industrial Buildings and Structures | Initial Allowance: 20% of construction costs. Annual Allowance: 4% of construction costs. A “Balancing Allowance” or “Balancing Charge” may apply upon the termination of ownership. |
| Commercial Buildings and Structures: | Annual Allowance: 4% of construction costs. |
| Depreciation Allowances for Machinery and Plant | Initial Allowance: 60% of the asset cost. Annual Allowance: Calculated based on the reducing value of the asset at rates of 10%, 20%, or 30% as prescribed by the Board of Inland Revenue. Assets with the same depreciation rate are grouped into a “pool.” |
| Charitable Donations | Cash donations made to recognized public charities or the Government for charitable purposes are deductible. The total deduction must be at least $100 and cannot exceed 35% of the adjusted assessable profits. |
Holding Over of Provisional Profits Tax
Similar to Salaries Tax, Profits Tax involves paying Provisional Tax based on the previous year’s income to offset the following year’s liability. Many businesses experiencing a decline in revenue may face difficulties paying this. In such cases, enterprises can apply for a Hold-over of Provisional Profits Tax to ease their financial burden.