Hong Kong Taxation

by Flux, David; Smith, David G.

• ISBN13: 9789629961596
• ISBN10: 9629961598
• Format: Paperback
• Copyright: 2004-01-01
• Publisher: Chinese Univ Pr

Summary

An important professional book on the Hong Kong tax system. Explaining in detail the taxes under the Inland Revenue Ordinance-property tax, salaries tax and profits tax. In order to supply a more comprehensive source of information for readers chapters on stamp duty and estate duty are included. Written in a user-friendly style, the book is amply illustrated with practical examples cross-referenced to relevant tax cases and relevant sections. The text is abundantly supplemented with detailed indices of tax cases and statutes. This 2003-04 edition addresses the most recent changes through July 2003. All of the year's court decisions and the most important Board of Review decisions are discussed.

Table of Contents

1981 Preface	xvii
Preface to 2002-03 Edition	xix
Abbreviations	xxi
Latin Words and Phrases	xxiii
Table of Cases	xxv
Board of Review Decisions	xxxiii
IRO, SDO and EDO	xxxvii
Chapter 1 General Scheme of Taxation in Hong Kong	1	(34)
1.1 Law, Interpretation and Policy	2	(6)
1.2 The Taxes in General	8	(5)
1.3 Estate Duty	13	(1)
1.4 Stamp Duty	14	(2)
1.5 Income Taxes	16	(13)
1.5.1 Year of assessment	16	(1)
1.5.2 Property Tax	16	(1)
1.5.3 Salaries Tax	17	(1)
1.5.4 Profits Tax	18	(2)
1.5.5 Depreciation allowances	20	(1)
1.5.6 Rates of Tax	21	(1)
1.5.7 Personal allowances	22	(1)
1.5.8 Personal assessment	22	(2)
1.5.9 Returns and information	24	(1)
1.5.10 Assessments and payment of Tax	25	(2)
1.5.11 Objections and appeals	27	(1)
1.5.12 Board of Inland Revenue	28	(1)
1.6 Inland Revenue Department	29	(2)
1.7 Taxation System from 1st July 1997	31	(4)
1.7.1 The Basic Law	31	(1)
1.7.2 The Hong Kong Reunification Ordinance	32	(3)
Chapter 2 Property Tax	35	(16)
2.1 Legislation	36	(1)
2.2 Scope of the Tax	36	(1)
2.3 The Charge	37	(3)
2.3.1 Net assessable value	37	(1)
2.3.2 Assessable value	38	(2)
2.4 Ownership	40	(3)
2.5 Exemptions and Reliefs	43	(3)
2.5.1 Governments	43	(1)
2.5.2 Corporations carrying on business	43	(2)
2.5.3 Clubs and trade associations	45	(1)
2.6 Assessment and Payment of Property Tax	46	(3)
2.7 Time Limits and Objections	49	(2)
Chapter 3 Salaries Tax	51	(108)
3.1 Legislation	53	(1)
3.2 Scope of the Tax	53	(1)
3.3 Source of the Income	54	(16)
3.3.1 General	54	(1)
3.3.2 Employment Income	54	(12)
3.3.2.1 Non-Hong Kong employment	60	(3)
3.3.2.2 Hong Kong employment	63	(3)
3.3.3 Holder of an office	66	(2)
3.3.4 Pensions	68	(1)
3.3.5 Seafarers and aircrew	69	(1)
3.4 Determination of Assessable Income	70	(39)
3.4.1 Inclusions In assessable income	71	(4)
3.4.2 Case law discussion	75	(9)
3.4.2.1 Is the income from employment?	75	(1)
3.4.2.2 Is the income for services rendered?	76	(1)
3.4.2.3 Payments on termination of employment	77	(4)
3.4.2.4 Payments on change of terms of employment	81	(1)
3.4.2.5 Payments on commencement of employment	82	(1)
3.4.2.6 Payments other than from the recipient's employer	83	(1)
3.4.2.7 Perquisites	83	(1)
3.4.2.8 Other issues	84	(1)
3.4.3 Housing accommodation benefit	84	(8)
3.4.4 Share option benefit	92	(7)
3.4.5 Other perquisites	99	(1)
3.4.6 Exclusions from assessable income	100	(9)
3.5 Deductions from Assessable Income	109	(20)
3.5.1 Expenses	109	(5)
3.5.2 Depreciation allowances	114	(1)
3.5.3 Self-education expenses	114	(2)
3.5.4 Charitable contributions	116	(3)
3.5.5 Home loan interest	119	(5)
3.5.6 Elderly residential care expenses	124	(2)
3.5.7 Retirement scheme contributions	126	(1)
3.5.8 Losses	127	(2)
3.6 Basis of Assessment	129	(8)
3.6.1 Basis period and income falling therein	131	(4)
3.6.2 Calculation of tax	135	(1)
3.6.3 Break-even point	136	(1)
3.7 Assessment and Payment of Tax	137	(5)
3.7.1 Filing requirements	137	(1)
3.7.2 Objections and appeals	138	(1)
3.7.3 Provisional Salaries Tax	138	(4)
3.8 Other Issues	142	(17)
3.8.1 Treatment of payments to service companies and trusts	142	(8)
3.8.2 Tax on tax	150	(2)
3.8.3 Taxation of married couples	152	(12)
3.8.3.1 The election	156	(1)
3.8.3.2 Provisional Salaries Tax	157	(1)
3.8.3.3 Definitions	158	(1)
Chapter 4 Profits Tax	159	(236)
4.1 Legislation	162	(1)
4.2 Scope of the Tax	162	(2)
4.3 Liability to Profits Tax	164	(18)
4.3.1 Persons chargeable	165	(2)
4.3.2 Carrying on a trade, profession or business	167	(5)
4.3.3 What constitutes trading	172	(6)
4.3.4 Meaning of business	178	(2)
4.3.5 Commencement of business	180	(2)
4.3.6 Cessation of business	182	(1)
4.4 Source of Profits	182	(34)
4.4.1 Statutory provisions	183	(1)
4.4.2 Case law - general principles	184	(16)
4.4.3 Case law - other issues	200	(4)
4.4.4 Source of interest income	204	(7)
4.4.5 IRD's practice	211	(5)
4.5 Ascertainment of Assessable Profits	216	(107)
4.5.1 When income arises	220	(4)
4.5.2 Treatment of capital profits	224	(1)
4.5.3 Other excluded profits	225	(11)
4.5.4 Amounts deemed taxable	236	(16)
4.5.5 Expenditure - general deductibility rules	252	(4)
4.5.6 When expenditure is incurred	256	(4)
4.5.7 Expenditure - capital v revenue	260	(6)
4.5.8 Expenditure deemed deductible	266	(26)
4.5.9 Expenditure deemed non-deductible	292	(5)
4.5.10 Payments to "service companies"	297	(5)
4.5.11 Trading stock and work-in-progress	302	(5)
4.5.12 Pre-commencement expenditure	307	(1)
4.5.13 Post-cessation receipts and payments	307	(1)
4.5.14 Apportionment of expenses	308	(4)
4.5.15 Losses	312	(11)
4.5.15.1 Losses involving taxpayers deriving concessionary trading receipts	313	(3)
4.5.15.2 Individuals	316	(1)
4.5.15.3 Corporations and other persons	317	(2)
4.5.15.4 Partnerships - general	319	(1)
4.5.15.5 Partnerships - loss limitation	319	(2)
4.5.15.6 Trustees	321	(2)
4.6 Basis of Assessment	323	(13)
4.6.1 Normal basis	324	(1)
4.6.2 Commencement	324	(2)
4.6.3 Cessation	326	(5)
4.6.4 Change of accounting date	331	(4)
4.6.5 Apportionment	335	(1)
4.7 Special Classes of Business	336	(38)
4.7.1 Life insurance corporations	336	(5)
4.7.2 Non-life insurance corporations	341	(3)
4.7.3 Shipping and aircraft businesses - general	344	(1)
4.7.4 Shipowning businesses	345	(7)
4.7.5 Resident aircraft-owning businesses	352	(8)
4.7.6 Non-resident aircraft-owning businesses	360	(1)
4.7.7 Financial institutions	360	(7)
4.7.8 Clubs and trade associations	367	(2)
4.7.9 Partnerships	369	(5)
4.8 Non-residents	374	(14)
4.8.1 Non-residents carrying on business in Hong Kong	375	(3)
4.8.2 Goods on consignment	378	(1)
4.8.3 Hong Kong agents	379	(4)
4.8.4 Payers other than agents	383	(4)
4.8.5 Arm's length pricing	387	(1)
4.9 Assessment and Payment of Tax	388	(7)
Chapter 5 Depreciation Allowances	395	(58)
5.1 Legislation	397	(1)
5.2 Scope of the Reliefs	397	(1)
5.3 Industrial Buildings	398	(12)
5.3.1 Qualifying expenditure	398	(7)
5.3.2 Initial allowance	405	(1)
5.3.3 Annual allowance	405	(3)
5.3.4 Balancing allowance/charge	408	(2)
5.4 Commercial Buildings (For years of assessment prior to 1998/99)	410	(2)
5.4.1 Qualifying expenditure	411	(1)
5.4.2 Allowances	412	(1)
5.5 Commercial Buildings (For 1998/99 and subsequent years of assessment)	412	(3)
5.5.1 Annual allowances	412	(2)
5.5.2 Balancing charges and allowances	414	(1)
5.6 Expenditure Qualifying as Plant and Machinery	415	(5)
5.7 Plant and Machinery Allowances (General)	420	(1)
5.8 Plant and Machinery Allowances (Pooling System)	421	(7)
5.8.1 Initial allowance	421	(1)
5.8.2 Annual allowance	421	(4)
5.8.3 Balancing allowance/charge	425	(3)
5.9 Plant and Machinery Allowances (Non-Pooling System)	428	(9)
5.9.1 Initial allowance	429	(1)
5.9.2 Annual allowance	430	(3)
5.9.3 Balancing allowance/charge	433	(4)
5.10 Leasing	437	(12)
5.10.1 When is a lease not a lease?	438	(2)
5.10.2 Sale and leaseback	440	(4)
5.10.3 Leverage leases general	444	(1)
5.10.4 Non-recourse debt	445	(1)
5.10.5 Leverage leases ships or aircraft	446	(2)
5.10.6 Leverage leases machinery or plant other than ships or aircraft	448	(1)
5.11 Miscellaneous Points Relating to Depreciation Allowances	449	(4)
5.11.1 Basis periods	450	(1)
5.11.2 Apportionment	451	(1)
5.11.3 Commissioner's powers to determine cost or value of asset	451	(2)
Chapter 6 Personal Assessment	453	(30)
6.1 Legislation	454	(1)
6.2 The Purpose of Personal Assessment	454	(1)
6.3 Persons Who Qualify	455	(3)
6.4 The Election	458	(1)
6.5 Computation of Total Income	459	(5)
6.6 Personal Allowances	464	(12)
6.6.1 Basic allowance (Sec. 28)	464	(1)
6.6.2 Married person's allowance (Sec. 29)	464	(1)
6.6.3 Child allowance (Sec. 31)	465	(1)
6.6.4 Dependent parent allowance (Sec. 30)	466	(3)
6.6.5 Dependent grandparent allowance (Sec. 30A)	469	(2)
6.6.6 Disabled dependent allowance (Sec. 31A)	471	(3)
6.6.7 Dependent brother or dependent sister allowance (Sec. 30B)	474	(1)
6.6.8 Single parent allowance (Sec. 32)	475	(1)
6.7 The Charge to Tax	476	(7)
Chapter 7 Returns and Information to be Supplied, Penalties	483	(28)
7.1 Legislation	484	(1)
7.2 Returns and Information	484	(11)
7.2.1 Returns general	484	(2)
7.2.2 Persons responsible	486	(2)
7.2.3 Returns by employers	488	(1)
7.2.4 Information	489	(1)
7.2.5 Statement of assets and liabilities	490	(2)
7.2.6 Search warrants	492	(2)
7.2.7 Business records	494	(1)
7.3 Service of Notices	495	(1)
7.4 Penalties	496	(15)
7.4.1 Omissions, failure to make returns, etc.	498	(3)
7.4.2 Penalty assessments (additional tax)	501	(7)
7.4.3 Fraud and wilful evasion	508	(2)
7.4.4 Miscellaneous	510	(1)
Chapter 8 Assessments and Payment of Tax	511	(20)
8.1 Legislation	512	(1)
8.2 The Power to Assess	512	(5)
8.2.1 General	512	(2)
8.2.2 Estimated assessments	514	(1)
8.2.3 Personal assessment	515	(1)
8.2.4 Additional assessments	516	(1)
8.3 Notices of Assessment	517	(1)
8.4 Payment of Tax	518	(3)
8.5 Recovery of Tax	521	(3)
8.5.1 District Court procedure	521	(1)
8.5.2 Collection from debtor of taxpayer	522	(1)
8.5.3 Detention of defaulters leaving Hong Kong	523	(1)
8.5.4 Impounding ships or aircraft	523	(1)
8.6 Repayment of Tax	524	(1)
8.7 Assessments Final and Conclusive	525	(6)
8.7.1 Error or omission claim (Sec. 70A)	525	(6)
Chapter 9 Objections and Appeals	531	(18)
9.1 Legislation	532	(1)
9.2 Objections	532	(4)
9.2.1 The form of an objection	532	(2)
9.2.2 Negotiation of objection	534	(2)
9.2.3 Commissioner's determination	536	(1)
9.3 Appeals	536	(11)
9.3.1 Board of Review	537	(5)
9.3.2 Court of First Instance	542	(3)
9.3.3 Direct appeal to Court of Appeal	545	(1)
9.3.4 Direct appeal to Court of First Instance	545	(2)
9.4 Provisions Regarding Married Couples	547	(2)
Chapter 10 Miscellaneous Matters	549	(46)
10.1 Double Taxation Relief	551	(9)
10.1.1 General	551	(2)
10.1.2 Tax credits	553	(2)
10.1.3 Commonwealth income tax relief (repealed)	555	(2)
10.1.4 Memorandum with the Mainland of China concerning double taxation	557	(3)
10.2 Exemptions	560	(1)
10.3 Retirement Schemes	561	(6)
10.3.1 Taxation consequences of retirement schemes	563	(4)
10.4 Anti-avoidance Legislation	567	(16)
10.4.1 Specific anti-avoidance	567	(1)
10.4.2 Sale of loss companies	568	(2)
10.4.3 General anti-avoidance provisions	570	(2)
10.4.4 Section 61	572	(2)
10.4.5 Section 61 A	574	(9)
10.4.5.1 Meaning of transaction	574	(2)
10.4.5.2 Tax benefit	576	(1)
10.4.5.3 Sole or dominant purpose	576	(2)
10.4.5.4 Countering the tax benefit	578	(2)
10.4.5.5 Case law discussion	580	(3)
10.5 Advance Rulings	583	(6)
10.5.1 Sch. 10, Part I	585	(4)
10.5.2 Sch. 10, Part II	589	(1)
10.6 Other Miscellaneous Matters	589	(6)
10.6.1 Board of Inland Revenue	589	(1)
10.6.2 Tax Reserve Certificates	590	(2)
10.6.3 Trusts, trustees and deceased estates	592	(1)
10.6.4 Notice of no objection to deregister a private company	592	(3)
Chapter 11 Stamp Duty	595	(38)
11.1 Legislation	597	(1)
11.2 Scope of the Charge	597	(1)
11.2.1 The four Heads of Charge	598	(1)
11.2.2 Territorial nature of charge	598	(1)
11.3 Immovable Property in Hong Kong	598	(10)
11.3.1 Conveyance on sale	599	(3)
11.3.2 Gifts and transfers at less than full value	602	(1)
11.3.3 Agreements for the sale of residential property	603	(4)
11.3.4 Leases	607	(1)
11.4 Hong Kong Stock	608	(8)
11.4.1 Sale and purchase	609	(1)
11.4.2 Exemptions	609	(2)
11.4.3 Gifts and transfers at less than full value	611	(1)
11.4.4 Transfers of beneficial interest other than by way of sale	611	(1)
11.4.5 Stock borrowing and lending	612	(2)
11.4.6 Unit trusts	614	(2)
11.5 Bearer Instruments	616	(1)
11.6 Duplicates and Counterparts	617	(1)
11.7 Determination of Stamping Value	617	(1)
11.8 What Constitutes Consideration	617	(3)
11.8.1 Debts waived and assigned	618	(1)
11.8.2 Methods of calculation of monetary consideration	618	(1)
11.8.3 Consideration less than market value	618	(1)
11.8.4 Exchange and partition of property	619	(1)
11.8.5 Contingency principle	619	(1)
11.9 Adjudication	620	(2)
11.9.1 Voluntary disposition inter vivos	621	(1)
11.9.2 The importance of adjudication	621	(1)
11.9.3 Fee for adjudication	622	(1)
11.10 Exemptions and Reliefs	622	(4)
11.10.1 Transactions with the Government, leases of consular premises, etc.	622	(1)
11.10.2 Gifts in consideration of marriage	623	(1)
11.10.3 Gifts to charitable institutions	623	(1)
11.10.4 Transfers within a corporate group	623	(3)
11.10.5 No change of beneficial interest	626	(1)
11.11 Assessment and Payment of Stamp Duty	626	(1)
11.12 Recovery of Stamp Duty	627	(1)
11.13 Late Stamping	627	(1)
11.14 Appeals	628	(1)
11.15 Other Issues	629	(4)
11.15.1 Substance over form	629	(1)
11.15.2 Non-admissibility of unstamped instruments	629	(1)
11.15.3 Remission of Stamp Duty by the Chief Executive	630	(1)
11.15.4 Failure to disclose facts and circumstances affecting Stamp Duty	630	(1)
11.15.5 Copies of instruments	631	(1)
11.15.6 Electronic stamping	631	(2)
Chapter 12 Estate Duty	633	(30)
12.1 Legislation	635	(1)
12.2 Scope of Charge	635	(6)
12.2.1 Persons liable to pay Estate Duty	636	(1)
12.2.2 Property which passes on death	637	(1)
12.2.2.1 Joint tenants and tenants in common	637	(1)
12.2.2.2 Settled property	638	(1)
12.2.3 Property deemed to pass on death	638	(3)
12.3 Location of Property	641	(2)
12.4 Determination of Dutiable Value of Estate	643	(4)
12.4.1 Gifts	643	(1)
12.4.2 Shares	643	(1)
12.4.3 Unincorporated business	644	(1)
12.4.4 Controlled company	644	(3)
12.5 Exemptions and Reliefs	647	(4)
12.5.1 Matrimonial home relief	648	(1)
12.5.2 Marriage settlement relief	649	(1)
12.5.3 Quick succession relief	649	(2)
12.6 Computation of Estate Duty	651	(4)
12.6.1 Aggregation of property	651	(1)
12.6.2 Allowable deductions	651	(1)
12.6.3 Rates of Estate Duty	652	(1)
12.6.4 Marginal relief	652	(3)
12.7 Assessment and Payment of Estate Duty	655	(3)
12.7.1 Estate Duty assessment	656	(1)
12.7.2 Interest and penalty	656	(1)
12.7.3 Recovery of Estate Duty	657	(1)
12.8 Time Limits and Appeals	658	(1)
12.9 Other Issues	659	(4)
12.9.1 Exemption of executors of small estates	659	(1)
12.9.2 Issue of probate	659	(1)
12.9.3 Anti-avoidance	659	(4)
Appendices Practice Notes Issued by the Inland Revenue Department	663	(270)
A. Departmental Interpretation & Practice Notes
1 No. 1: Valuation of Stock-in-Trade and Work-in-Progress, etc.	665	(1)
2 No. 2: Profits Tax Industrial Buildings Allowances, Commercial Buildings Allowances	697	(1)
3 No. 3: Profits Tax - Apportionment of Expenses	721	(1)
4 No. 4A: Business Receipts - Lease Premiums, Unreturnable Deposits, Key Money, Construction Fees, etc.	723	(1)
5 No. 5: Scientific Research, Technical Education, and Patent Rights, etc.	725	(1)
6 No. 7: Machinery and Plant - Depreciation Allowances	733	(1)
7 No. 8: Profits Tax: Losses	759	(1)
8 No. 9: Major Deductible Items under Salaries Tax	765	(1)
9 No. 10: The Charge to Salaries Tax	775	(6)
10 No. 12: Commissions, Rebates and Discounts	781	(4)
11 No. 14: Property Tax from 1983/84; Provisional Property Tax	785	(6)
12 No. 15: Loss Relief Limitation, Leasing Arrangements and Anti-Avoidance Provisions	791	(18)
13 No. 16: Taxation of Fringe Benefits	809	(8)
14 No. 17: The Taxation of Persons Chargeable to Profits Tax on Behalf of Non-residents	817	(6)
15 No. 18: Assessment of Individuals under Salaries Tax and Personal Assessment	823	(16)
16 No. 19: The Agreement between U.S.A. and Hong Kong in Respect of the Taxation of Shipping Profits	839	(12)
17 No. 21: Locality of Profits	851	(14)
18 No. 32: Agreement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income	865	(40)
B. Stamp Office Interpretation & Practice Notes
1 No. 1: Stamping of Agreements for Sale and Purchase of Residential Property	905	(25)
Supplementary Notes: Stamping of Agreements for Sale and Purchase of Residential Property	930	(3)
Index	933