Regulations on Assessment of Taxpayer and different Notices and Administrative matters controlled by Inland Revenue Department for Taxpayer establishing a Business in Hong Kong


In this part of blog we will explore different type of notices that are issued to taxpayers in Hong Kong by the Inland Revenue department. These notices include notices of assessment, service and signature of notices, change of address and validity of assessment. Some of notices among these are sent to the taxpayer by Inland Revenue department while other are sent to Inland Revenue department by taxpayers. A person should be aware of these notices before doing a business or to set up company in HK. Then we will have discussion on the administrative matters that are related to the alternative bond scheme with effect from 19 July 2013.    

Assessment of Taxpayer at Different Category

Loss Cases Assessment

The word loss computation is not included in the assessment. In a case of Agnes trading as LM Yau & Co it was observed that loss computation can be revised by Inland Revenue department outside the 6-year limit of Section 60 of Hong Kong tax law.

Estoppel in Assessment

It was argued by taxpayers in some cases that one assessor was assessed in accordance with the return that he has accepted. The inland revenue department was prohibited from raising an additional assessment. It was argued by some taxpayers that some enquiries had raised by assessors and then accepted the return. It was also claimed by them that assessor could not change their mind after that and additional assessments were raised by them. Such restriction was not imposed on assessor under Section 60 of Hong Kong tax law. As long as it is observed by assessor that a taxpayer has not been under-assessed or assessed, the taxpayer may be assessed by assessor under Section 60 of Hong Kong tax law. If a matter has been determined on appeal or objection then only assessor i.d prohibited from raising an additional assessment or assessment under Section 70 proviso of Hong Kong tax law. It was pointed out by board of revenue department in case D 30/04 that as a generic rule, the Inland Revenue department is not prevented from performing its duties under Inland Revenue ordinance. A preventable perhaps may arise if settlement had made between inland revenue department and taxpayer as to the amount of assessable profits. The reference for this statement is taken from proceeding of cases (D 52/87 and D 30/04).

Now we will discuss an example to understand such situation, Mr. Wong was running Hong Kong company setup service. He was proprietor of a business that was based in Hong Kong. A profit tax return was submitted by him for the assessment year 2010 to 11. It was showed in the tax return the assessable profits of $ 100,000. Inland revenue department investigated him. The assessable profits of him for the assessment year was found by an assessor to be $ 300,000. An additional assessment can be raised on understand profits of $ 200,000 by assessor for assessment year 2011 to 12 no after 31 March 2017, or 31 March 2021. And that is in the case if understatement was due to deliberate default or fraud by Mr. Wong.

Assessment of an Expired Person  

If expired person died at any time on or after 11 February 2016, then as a consequence of ending of estate duty, the time limit is changed to 3 years after the assessment year immediately in which expired person died. Assessor have powers to raise an assessment for a taxpayer who died before 11 February 2006, in respect of period before the date of death no after than:

  • 1 year from the date of filing an affidavit that was required under the Estate Duty Ordinance (EDO).
  • 1 year from the date of expiry.

Whichever among these is later under Section 54 (b) of Hong Kong tax law? The tax is chargeable to the executor for all periods before the date of death with which expired person would be chargeable, in case he was not died and the tax was chargeable on his Hong Kong company setup service running by him before death.

For example, Mr. Wong expired on 31 July 2015. After 31 March 2019 no assessment can be raised on the executor of Mr. Wong.

Notices Issued by Inland Revenue Department

Assessment Notices

After assessment has raised by an assessor on a person, a note of assessment would be given to the concerned person by CIR. In which it would be stated the:

  • The due dates as fixed by CIR under Section 62 (1) of Hong Kong tax law for Tax payment.
  • The assessed amount.
  • The charged tax.

Service and Signature of Notices

Every notice that is given by CIR, an assistant commissioner, an inspector, a deputy commissioner, an assessor under inland revenue ordinance shall carry the name of the CIR, assistant commissioner, inspector, deputy commissioner, assessor, as according to the case and each of such notice shall be legal and valid if the name of inspector, CIR, assessor, assistant commissioner, deputy commissioner is properly signed or printed thereon. The reference for this statement is taken from Section 58 (1) of Hong Kong tax law.

A notice that is given by morality of the Inland Revenue ordinance may be served on the person either:

  • Sent by post or being delivered at:
  • Under Section 58 (2) of Hong Kong tax law, the buildings or land or buildings and land in regard to which he is allowable to property tax.
  • His place of accommodation, employment or he setting up an office in Hong Kong in new location and may be his last known postal address.
  • Any place at which he was, or is during the year of relation of notice, carrying a business or employment.  
  • Personally

If a notice is sent by post by Inland Revenue department then it should be considered, unless the opposing is shown, to have been served on the day following the day on which in the ordinary course by post it have been received under Section 58 (3) of Hong Kong tax law. Under Section 58 (4) of Hong Kong tax law, in order to prove the service by post it shall be sufficient to prove the latter in which it contained the notice was posted and completely addressed.

Under Section 58 (4) of Hong Kong tax law, every name that is signed or printed on any notice or signed on any certificate issued or given for the Inland Revenue ordinance purposes which claims to be the name of person that is authority to issue or give the same shall be noticed on judicial basis.

Something is required to be done by a notice that is given under part IX of Inland Revenue ordinance within a time that is stated in the notice, the CIR or, if notice is given by it or an assessor in case notice is given by it may, by a written notice extend the time for obeying the notice under Section 58 (6) of Hong Kong tax law.

Change of Address

In a case Charles C Y Cheng it was observed that, to the last known private address of taxpayer having set up company in HK, a penalty assessment was sent by CIR. As long as notices were delivered to the private address of taxpayer, he had migrated to United States of America. Under Section 58 (1) of Hong Kong tax law it was required by him to advise the CIR of his actual change of address. He did not advise the CIR of his actual change of address. Due to that reason it was held by CIR that notices delivered to his private address are valid.        

Validity of Assessment

An assessment notice, certificate or other following claiming to be in accordance with the allowance of inland revenue ordinance will not be affected or avoid due to reason of any defect, omission or mistake if:

  • A notice or assessment etc. effects or assesses the person, is appointed there in according to the common understanding and aim under Section 63 of Hong Kong tax law.
  • It is in medium and effect in adherence with, or according to the aim and meaning of Inland Revenue ordinance.

An error of substance as to avoid a NOA invalid can be a basic error. Under Section 63 of Hong Kong tax law, however a mere error of word ‘limited’ from the corporation’s name was not held to be an error of substance. NOA also falls within Section 63 of Hong Kong tax law as observed in the proceeding of case (Hong Kong Flour Mills Ltd.) 

Administrative Matters related to the Alternative Bond Scheme (with effect from 19 July 2013)

Some of administrative allowances in Inland Revenue ordinance are modified by the schedule 17A of the Inland Revenue ordinance (with effect from 19 July 2013).

Records which need to be kept

An individual who makes a:

  • ‘Investment arrangement scheme’ i.e. claimed by the person that arrangement is qualified investment arrangement (QIA) in a specified alternative bond scheme and he is the bond issuer or originator under the supposed specified alternative bond schemes.
  • ‘Bond arrangement claim’ i.e. it is claimed by the person that arrangement is qualified bond arrangement (QBA) in a specified alternative bond scheme and he is the bond issuer or originator under the supposed specified alternative bond schemes.

As in relation to an arrangement in a specified alternative bond scheme that is for the purposes of assuring the profits that are assessable for the trade, business or profession for any assessment year must keep transactions related records, operations or acts that are related to specified alternative bond scheme at least until the later of:

  • The completion of 3 years after the expiry of specified period of the scheme under Section 51 C (5) of Inland Revenue ordinance, and Section 25 (1) and (25 (2) of schedule 17A.
  • The completion of 7 years after the end of transactions, operations or acts to which they are related to.

The alleged period of an alternative bond scheme, consisting of the investment arrangement and bond arrangement in the scheme:

  • Expires on the date on which the alternative bond schemes are to be considered fully or terminated under the terms of bond arrangement. The reference for this statement is taken from Section 25 of schedule 17A.
  • Begins on the date on which bond issuers issued the alternative bonds under to initial bond holders under the bond arrangement, proving their interests and rights in or in relation to the alleged assets attained by the bond issuers using the bond proceeds.

If someone gets failed to keep the proper records is a misdeed under Section 80 of the Inland Revenue ordinance.

If a person makes an ‘investment arrangement claim’ or ‘bond arrangement claim’ in relation to an arrangement in a specified alternative bond schemes, Section 25 (1) of schedule 17A expires to apply the reservation of records that are related to the transactions, operations or acts related to scheme if;  

  • After for any assessment year claim has been accepted, one or more alleged assessments are made on the persons due to the reason of disqualification of the arrangement, and all assessments that were alleged have become conclusive and final under Section 70 of Inland Revenue ordinance.
  • One or more than one assessments have been made on taxpayer who establishing a business in Hong Kong on the ground that for any assessment years claim is not accepted, and assessments have all become conclusive or final under Section 70 of the Inland Revenue ordinance of Hong Kong.

Responsibility to Inform the CIR of Event Disqualification

If an ‘investment arrangement claim’ or ‘bond arrangement claims’ is made by a person then he must inform the CIR of that alleged event (i.e. ‘investment arrangement claim event’ or ‘bond arrangement claims event’) that occurs in relation with the arrangement within 30 days after occurrence under Section 26 (1) of schedule 17A.

An event known as ‘bond arrangement disqualifying event’ that is in relation to an arrangement in a scheme that has been either accepted or claimed to be a QIA in a specified alternative bond schemes for the reason of assuring the tax that is allowable on a person means:

  • Even though the scheme is a qualified alternative bond scheme for all the time during the alleged period of the scheme, but scheme is not passed to comply with any conditions alleged in Section 13 (1) of the schedule 17A at any time during the alleged period Section 13 (5) of schedule 17A.
  • The given scheme is not an alleged alternative bond scheme at all at any time during the alleged term of scheme.

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