In this course · 3 of 6
Course 5
Claim your deductions
6 lessons · 6 min
- 1Which business expenses are deductible for Hong Kong profits tax?
- 2What expenses cannot be deducted for Hong Kong profits tax?
- 3How are depreciation allowances calculated in Hong Kong?
- 4Does Hong Kong offer a super deduction for R&D spending?
- 5Can I carry forward tax losses in Hong Kong?
- 6Can a Hong Kong company deduct the owner's salary and director's fees?
The short answer
Hong Kong ignores accounting depreciation and gives statutory capital allowances instead. For plant and machinery: a 60% initial allowance plus annual allowances of 10%, 20% or 30% on the reducing balance, depending on the asset's working life. Industrial buildings get 20% plus 4%; commercial buildings 4% a year; some assets can be written off immediately.
Hong Kong replaces book depreciation with statutory capital allowances.
Plant and machinery (per the Inland Revenue Department's (IRD's) brief guide)
- Initial allowance of 60% of cost.
- Annual allowances on the reducing value at 10%, 20% or 30% depending on estimated working life, pooled by rate.
- A balancing allowance on cessation of business and a balancing charge (tax clawback) when disposal proceeds exceed the pool's value.
Buildings
- Industrial buildings and structures: 20% initial plus 4% annual.
- Commercial buildings: 4% annual allowance.
Immediate write-off is available for capital expenditure on manufacturing machinery and plant, and on computer hardware and software, and for specified environmental protection facilities. Refurbishment of business premises is written off over five years of assessment.
Practical points
- Disposals of assets in a pool can trigger a clawback (balancing charge).
- Rules differ for assets bought from related parties and for IP rights, so look at the specific provision.
- Keep the fixed-asset register in line with the tax computation.
The IRD's practice note on depreciation allowances gives the details and examples.
Legal basis and sources
The law
- Inland Revenue Ordinance (Cap. 112), Part 6 and s.16G
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Was this lesson useful?
Upvote it and it moves up for the next reader who asks.
