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Profits Tax for Self-employed


Profits Tax for Self-employed

Simply speaking, self-employed persons are people who work for themselves, not employees.

In the absence of any employment relationship, if you earn income by buying or selling goods, providing professional or personal services, you will be treated as a business, business or professional, that is, self-employed. Self-employed persons can be proprietors or partners in partnerships.

As a self-employed person, you are chargeable to profits tax on the assessable profits of your sole proprietorship or partnership business. You need to:

  • keep sufficient business records for at least 7 years;

  • prepare accounts based on your accounting records;

  • complete and submit a tax return for reporting business profits or losses;

  • notify the Inland Revenue Department in writing about your liability to tax, not later than 4 months after the end of the basis period for the year of assessment concerned, unless you have already received the tax return from the Department;

  • notify the Inland Revenue Department about the cessation of your business within 1 month of cessation;

  • notify the Inland Revenue Department about your change of address within 1 month of the change; and

  • pay the tax.

Consequences of Not Paying Tax On Time

Section 71(1) of the Inland Revenue Ordinance (Cap. 112) provides that tax charged under the provisions of this Ordinance shall be paid in the manner directed in the notice of assessment on or before a date specified in such notice. Any tax not so paid shall be deemed to be in default.

If the first instalment is not paid by the date specified on the notice of assessment, the second instalment will become immediately due. The entire balance of the total tax payable in the notice of assessment remaining unpaid shall be deemed to be in default and will be immediately recoverable.

The Commissioner of Inland Revenue will initiate recovery actions [including imposition of 5% surcharge on the entire balance of the demand notice, issue of recovery notice to third party and initiation of legal action, etc] as authorized by Part XII of the Inland Revenue Ordinance for recovering the total outstanding amount.

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