Aug. 2013 - Late filing consequences for overdue tax profits

CONSEQUENCES OF LATE TAX FILING

The Inland Revenue Department (“IRD”) may take punitive actions for failure to file the profits tax return by the due date:

(a) Prosecution

The Commissioner of Inland Revenue (“CIR”) may prosecute the taxpayer who has failed to file the profits tax return by the due date without reasonable excuse. The court may impose a fine up to HK$10,000 and a fine of three times the amount of tax undercharged.

(b) Compound offer

The CIR may compound the offence in lieu of prosecution or assess an additional tax as penalty not exceeding three times the amount of tax undercharged. The CIR will not prosecute the taxpayer under the conditions that the taxpayer submits the completed tax return and accepts the compound offer within a specified time limit.

(c) Additional tax

If the taxpayer failed to file the tax return by the due date, the CIR is empowered to take penal action against the taxpayer for late filing. The CIR will impose a penalty on the taxpayer in form of an additional tax. The maximum amount of penalty assessment for additional tax is three times the amount of tax undercharged when the CIR considers that the taxpayer, without reasonable excuse, failed to file the tax return within the due date. The taxpayer has the right to make a written representation, within the time specified by the IRD, to explain the reasons of late filing for the consideration of the CIR when making the additional tax assessment.

(d) Estimated assessment

The CIR may estimate the assessable profits and raise an assessment accordingly. If the taxpayer wishes to make an objection, it must be lodged within one month after the issue date of the estimated assessment and must be accompanied by a completed profits tax return.Otherwise, the estimated assessment will become final and conclusive. Therefore, the tax assessed will become payable. The taxpayer may suffer if the estimated assessable profits exceed the actual profit. The CIR may also raise additional estimated assessments if no valid objection is filed for the estimated assessment.

SOLE PROPRIETORSHIP BUSINESSES

For sole proprietorship businesses represented by a tax representative, the extended due date for filing the 2012/2013 profits tax returns is 2 October 2013. Taxpayers are highly recommended to mark down this due date to avoid any unpleasant penal action taken by the IRD.