What is the difference between accounting depreciation and tax depreciation allowances in Hong Kong?
Accounting depreciation is the charge in your financial statements. Tax allowances are the IRD's own scheme for relief on capital spending, calculated on different rules. Depreciation charged in the accounts is added back when profits tax is computed, then allowances are claimed instead.
Accounting depreciation follows the accounting standard and company policy: cost spread across useful life, by the method you choose.
Depreciation allowances are statutory tax relief under the Inland Revenue Ordinance. The IRD's brief guide describes them as follows:
- Plant and machinery: an initial allowance of 60% of cost, followed by annual allowances on the reducing value at 10%, 20% or 30% depending on the estimated working life, with assets pooled by rate. A balancing allowance or charge arises on disposal or cessation.
- Industrial buildings: an initial allowance of 20% plus 4% a year.
- Commercial buildings: a 4% annual allowance on construction cost. Capital expenditure on specified environmental protection facilities (machinery, installations that form part of a building, and environment-friendly vehicles) qualifies for a 100% deduction. Other special incentives exist.
How they meet. Accounting depreciation is not itself deductible for profits tax. The tax computation adds it back and substitutes the allowances. So the figures usually differ, and the difference is tracked in the tax computation, not in the bookkeeping.
For the bookkeeper: record depreciation for the accounts; keep the cost, date and nature of each asset so the tax adviser can compute allowances. The tax calculation itself is covered by our profits tax section.
Check current rates and conditions with the IRD, because incentives and rules change.
Legal basis
- Inland Revenue Ordinance (Cap. 112), Part 6
Sources
Applies to 2026 · Last reviewed 29 October 2026
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.
Related questions
- Is a Hong Kong company legally required to keep accounting records?Yes. Section 373 of the Companies Ordinance (Cap. 622) requires every company to keep accounting records that explain its transactions and show its financial position and performance at any time. Directors who fail to take all reasonable steps risk a fine of HK$300,000, and up to 12 months' jail if the failure is wilful.
- How long must a Hong Kong company keep its accounting records?Seven years. Under section 377 of the Companies Ordinance, a company must keep its accounting records for 7 years after the end of the financial year to which the last entry relates. The Inland Revenue Department separately requires business records to be kept at least 7 years after the transactions they relate to.
- What does section 51C of the Inland Revenue Ordinance require from my business?Anyone carrying on a trade, profession or business in Hong Kong must keep enough records, in English or Chinese, to work out assessable profits, and keep them for at least 7 years. Failing to do so without reasonable excuse can lead to a fine of up to HK$100,000.
- Which documents should a Hong Kong business keep for its books?Keep every document that supports an entry in your books: sales and purchase invoices, receipts, bank statements, contracts, payroll and MPF records, asset purchase papers, loan agreements, and stocktake sheets. The test is whether someone else could trace any figure back to its source.
- Can a Hong Kong company keep its accounting records digitally or scan paper originals?Yes. The Companies Ordinance allows records in hard copy or electronic form, provided they stay available for reference and can be reproduced on paper. The IRD also accepts electronic books and scanned source documents if integrity, legibility and origin details are preserved, and no prior approval is needed.