What are the provisional salaries tax for Hong Kong incorporation services and procedures of calculating tax for married couple under separate and joint taxation?


In the following blog we will explore the provisional salaries tax, its different aspects as holding-over payment of provisional tax, grounds for hold-over and salaries tax on a married couple. We will also have discussion on the different allowances that can be claimed by any one partner depending upon the nomination from the couple.    

Salaries Tax at Provisional Level

Under Section 63B (1) of Hong Kong tax law, if a person rendering Hong Kong incorporation services is allowable to salaries tax then where applicable, he is also liable to pay provisional salaries tax. The provisional salaries tax amount depends on the amount of:

  • NCI for the introduced assessment year as adjusted under Section 63 C (1) of Hong Kong tax law by some unrelieved losses that were carried forward.
  • In case of beginning of income derivation, the amount of provisional salaries tax in the year of beginning and following year may be estimated by assessor under Section 63 C (2).

Payment of Provisional Tax as Holding-Over

An application can be written for the holding-over of the payment of provisional tax. This application should be submitted with CIR not later than:

  • 28 days before the day of payment of provisional tax.
  • 14 days after the day by which the notice was sent for payment of provisional tax.

Which one among above defined points is later in accordance with Section 63E (1) (a).

The grounds on which hold-over application is dependent must be specified in the application as discussed in Section 63E (1) of Hong Kong tax law.

Grounds for Hold-Over at Provisional Tax

On any of grounds given below, a claimant can be made for holding over provisional salaries tax:

  • Entitlement of a person working for Hong Kong company setup service to claim new personal allowances under Section 63E (2) (a).
  • Termination of source of income during the assessment year and NCI is less than or likely to be less than:
  • that of the herald assessment year; or
  • the sum that is estimated and in which the taxpayer is not allowable to the provisional tax under Section 63E (2) (c).
  • NCI is or likely to be less than 90 % of:
  • NAI that is estimated and on which provisional tax is charged on the taxpayer under Section 63E (2) (b).
  • that of herald assessment year.
  • Against the assessment for the herald assessment year an objection has been submitted under Section 63E (2) (d).

Also the business registration certificate Hong Kong is necessary for a business to get registered with Tax department. Business would only be legal if it would have that certificate.   

Husband and Wife Salaries Tax

If marriage of a man is according to the meanings that are defined under Section (2) (1) of Hong Kong law, then such person is called husband.

If marriage of a women is according to the meanings that are defined under Section (2) (1) of Hong Kong law, then such women is called wife.

Marriage

The definition of marriage is as:

  • Any marriage that is acknowledged by the Hong Kong law.
  • According to Section (2) (1) of Hong Kong law, any marriage that took place in a place other than Hong kong and according to marriage law of that place where it was happened and between the others persons that had capacity to do so and they rendering services for Hong Kong company setup service then they said to be married .

Husband and Wife not living together

A husband and wife shall be judged for purposes of tax when they are living separate:

  • Under an activity of separation that is executed by both of them.
  • Under the order of divorce that were granted inside or outside Hong Kong by court.
  • Under Section 2 (3) of Hong Kong tax law, in such conditions that opinion of CIR is likely to be persistent for separation. But this question is the question of fact and it is to be determined by the condition of each case.

Separate Taxation (if both Earning)

If a husband and wife have separate incomes that is allowable or assessable under Hong Kong tax law, then these would be assessed separately as if both are unmarried persons. For the assessment to be joint, they should be elected and eligible. Under Section 10 (1) of Hong Kong tax law, separate taxation is mandatory for each partner to his / her own return on income. This income can be from pension or office or employment. Also each partner has to pay his / her own tax on salaries, claim allowances that are personal by himself / herself and receive his / her own assessment record.

Basic Allowances

In accordance with Section 28 (1), under separate taxation a basic allowance for an individual is granted to each partner individually.

Child Allowance

Only one partner can claim the child allowance at a time.

In accordance with Section 31 (3), it is duty of each couple to nominate that who can claim allowances for all of their children. Without the assent of the CIT parent cannot revoke the nomination that is made in any assessment year under Section 31 (4).   

Giving an example, Mr. and Mrs. Chan were a married couple. Both of them were getting salary from company having Hong Kong business formation. They also had two children having age six and eight respectively. In respect of these children, anyone among the couple can be elected to claim for the allowances of children under separate taxation policy of Hong Kong. And one key thing to remember here is that it is not possible for Ms. Chan to claim the allowances for one child and Mr. Chan to claim the allowances for other child under this separate taxation policy.

Dependent Grandparent and Parent Allowance

In contrast with the child allowance, in case of a married couple the dependent grandparent allowance and dependent parent allowance is eligible for one or more parents which can be claimed by any partner.

Deductions in Concessionary

Charitable donations that are approved and made by any partner of married couple can be claimed as the deduction in the assessment of other partner. But there should be no double claim for the same amount, as taken from Section 26C (1) of Hong Kong tax law.

Elderly residential care expenses, in respect of one or more parents that are eligible, the residential care expenses can be claimed by either the husband or wife.

Interest for home loan, a partner working for Hong Kong business formation company who is judged to have paid the interest is eligible to claim the deduction. But in case if that partner has no income or profit that is assessable under the Inland Revenue ordinances then other partner can be nominated by his / her to claim the deduction.

Salary Tax Computation under Separate Taxation

For the assessment year 2015 to 16 the format to compute the salaries tax of a married couple under separate taxation policy of Hong Kong is given below:

Name of Individual

Separate taxation

Assessment year

Basic period

 

 

                                                                         Husband                Wife

Assessable income                                    $ X                             $X

Less: allowable expenses     =                    $ (X)                 $ (X)

                                              --------------               ------------

Net assessable income (NAI)                                     $ X                  $X

Less: concessionary deductions:

Charitable donations that were approved (limited to 35% of NAI

Before the losses b / f and self-education expenses)              $ X                  $ X

Expenses for residential care                                 $ X                  $ X

 Interest for Home Loan                                      $ X                         $ X

Contribution to recognized retirement scheme              $ X                         $ X

                                                               -------------                  --------------

                                                                $ (X)                        $ (X)

                                                               -------------                  --------------

After concessionary deductions NAI is                 $ X                  $ X

Less: Personal allowances         

       Dependent parent allowance                                                 $ X                  $ X                                                                                             

       Dependent grandparent allowance                                    $ X                  $ X

       Dependent sister or brother                           $ X                  $ X

       Basic                                                 $ X                  $ X

       Child                                                 $ X                  $ X

       Disabled parent                                         $ X                  $ X

                                                               -------------                  --------------

                                                                $ (X)                        $ (X)

                                                               -------------                  --------------

Net chargeable income                                           $ X                  $ X

                                                               -------------                  --------------

                                                               -------------                  --------------

Salaries tax                                                     $ X                  $ X                                                                                                            -------------                  --------------

Less tax reduction (if applicable)                           $ (X)                        $ (X)                                                                                                            -------------                  --------------

Payable salaries tax                                         $ X                  $ X

                                                               -------------                  --------------

                                                               -------------                  --------------

  • Assessment of Tax at Joint Level
  •  
  • How Election is made?
  •  
  • For the joint assessment an election shall be made:
  • In a form that is already specified under Section 11 (1).
  • By husband and wife jointly.
  • Where there is income of husband and wife involved and that too assessable, if in case
  • the net assessable income of one partner is less than his / her personal allowances or concessionary deductions.
  • under the separate taxation the total tax that is payable to husband and wife is more than that of under joint assessment, as under the reference taken from Section 10 (2).

Election’s Time Limit

In case of year the time limit for election is 1 year after the assessment year that is in question while in case of time limit for one month it is after the date on which assessment of salaries tax has become conclusive and final, whichever is later under Section 70 of Hong Kong tax law.

Depending upon the reasonable circumstances considered by the CIR it may grant the extension in time for submitting election, taken from Section 11 (B) of Hong Kong tax law.

Partner that is Responsible to pay Tax on Salaries

In case of the joint assessment the partners that are entitled to pay tax is as under:

  • In case of having an election under which total separate taxation scheme is more than the tax under joint assessment. And the partner is nominated by wife and husband both under Section 10 (3).
  • In case of having an election under which personal allowance of a partner is more than his / her net assessable income. And the partner who would have been subjected to tax on salaries when such an election is not present.

The most integral part of the process of election is nomination of a partner that is chargeable. And according to DIPN 18 any variation in the nomination will lead to the withdrawal of election.

Deceased Husband or Wife

  • Under Section 10 (4), in the case of election for joint assessment if husband or wife is dead then an enforcer will have the same right as the dead partner would have / had if he / she had alive, to make an election.

Election’s Withdrawal for Joint Assessment

  • Within the time limit that is same as for submission of election, for the purpose of joint assessment a withdrawal of an election must be made in order to write and jointly signed by the married couple. Depending upon the reasonable circumstances considered by the CIR it may grant the extension in time for submitting election. The reference for this statement is taken from Section 11 (3).
  • If the election for one assessment year is withdrawn once, then according to Section 11 (4), in respect of that year the husband and wife cannot elect again. In case of withdrawal of an election, any assessment for the same assessment year will be revised in accordance with restoration of assessment of each partner to a pre-election basis.
  • The Computation of Tax under Joint Assessment

The net assessable income includes losses, expenses for self-education, assessable income less outgoing and expenses, allowances for depreciation etc. These described net assessable income of each partner shall be confirmed separately under the joint assessment. The reference for this statement is taken from Section 10 (1).

Then these net assessable incomes are sum up. The given below expenses are deductible from that sums:

  • Concessionary deductions that include:
  • contribution to a retirement scheme that is recognized.
  • charitable donations that are approved.
  • interest for home loan.
  • elderly residential care expenses.
  • Personal allowances.

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