[Hong Kong] Tax Deductible Expenses for Hong Kong Company

Tax deductible expenses for Hong Kong company

Expenses that are incurred for producing profits chargeable to Hong Kong profits tax and that are not capital in nature are generally tax deductible.
Special tax allowances are available for certain capital expenditures.
Special rules for deduction of certain expenses.

Accounting treatments are usually followed in determining the assessable profits, except when there is an explicit rule in the Inland Revenue Ordinance.
Accrued expenses recognised in the profit and loss accounts in accordance with accounting principles are usually deductible if they are incurred for producing profits chargeable to Hong Kong profits tax and are not capital in nature.

Industrial building allowance: An initial allowance of 20%, in addition to an annual allowance of 4%, of the cost of construction or cost of purchase from a developer is granted for an industrial building or structure occupied for the purpose of a qualifying trade.
Commercial buildings allowance: An annual allowance of 4% of the capital expenditure incurred on the construction.
Plant and machinery: An initial allowance of 60% of the capital expenditure on plant and machinery. An annual allowance is given according to the depreciation rate pools (10%, 20%, 30%) on reducing value of original cost less initial and annual allowances and sales proceeds.

Generally, a bad or doubtful debt incurred in any trade, business, or profession, proved to the satisfaction of the Inland Revenue Department to have become bad during the basis period for a year of assessment, is deductible.
The deduction is limited to debts that were included as a trading receipt in ascertaining the taxpayer’s assessable profits.
If any bad or doubtful debt that has previously been allowed as a deduction is recovered, it will be treated as taxable profits of the basis period in which it is recovered.a

A deduction is allowed for cash donations to approved charities made in the basis period for a year of assessment if the aggregate of such donations is not less than HK$100.
The deduction is limited to 35% of the assessable profits of the year of assessment.

Penalties – Fines and penalties are generally not deductible.
Taxes – Taxes paid on profits are generally not deductible for the purpose of calculating the assessable profits.
Taxes – A foreign tax that is not calculated by reference to profits (e.g. VAT) may be considered as deductible under the general deduction provision.