The above information is for reference only. If you have any questions about tax declaration and accounting, we welcome your inquiries.

Whether it is between the superiors and subordinates of a company, between colleagues, between accountants and auditors, or even between employees in the audit firm, it is often found that everyone is always arguing over this issue. Does the renovation apply commercial building allowance or building renovation? What are the differences? Yes, in fact, no one cares about these two terms. What everyone concern should be the percentage of tax deductions behind those terms.

Commercial building allowance can only be deducted 4% per year, that is, if HKD one million is used for renovation, only HKD40,000 can be deducted per year. But building refurbishment is different that is 20% deduction per year, you can deduct HKD200,000 per year. Everyone will immediately think that 20% of building refurbishment is a must to apply! Right?

However, the fact is that if you want to apply `building refurbishment’ to deduct tax, the Inland Revenue Department has relevant tax regulations to enable eligible renovations to enjoy this tax rate, and it will also exclude unqualified renovations to only enjoy other tax rates such as Commercial building allowance.

Let’s take a look at Section 16F of the Inland Revenue Ordinance first. Section 16F (4) explains three situations where building refurbishment cannot be applied:

(a) capital expenditure incurred for a building or structure which is used or intended to be used as a domestic building or structure;

(b) capital expenditure incurred by a person to enable a building or structure to be first used substantially by the person for the production of profits in respect of which the person is chargeable to tax under this Part;

(c) capital expenditure incurred by a person to enable a building or structure to be used for a purpose different from that for which it was used immediately before the capital expenditure was incurred. (Replaced 32 of 1998 s. 9)

Then let’s take a look at Section 33A(1) of the Inland Revenue Ordinance to find out who can enjoy the Commercial building allowance:

• Where any person is, at the end of the basis period for any year of assessment, entitled to an interest in a building or structure which is a commercial building or structure and where that interest is the relevant interest in relation to the capital expenditure incurred on the construction of that building or structure, an allowance for depreciation by wear and tear of that building or structure, to be known as an “annual allowance”, of an amount equal to, subject to subsection (2), one-twenty-fifth of the expenditure, shall be made to the person for that year of assessment. (Amended 12 of 2004 s. 9)

Finally, let’s take a look at paragraph 16 of the Departmental Interpretation and Practice Notes no. 5 (revised) of the Inland Revenue Ordinance. When eligible renovations cannot enjoy building refurbishment, they will enjoy commercial building allowances:

16. Capital expenditure incurred on the initial construction, decoration or fitting out of a commercial building or structure, and expenditure on alteration of a building to enable a different usage do not qualify for the deduction under section 16F(1) but they may qualify for commercial building allowance under section 33A.

Let us briefly explain the actual situation. After you have renovated your company or shop, you will immediately want to enjoy the 20% tax deduction rate for building refurbishment, so what is eligible renovation? The answer is at least the reason for renovation must be making a profit. For example, it is not for self-occupation or other personal use.

Now, we have passed the eligible test. For example, I newly operate a restaurant. Of course, the renovation occurred due to making profit, so this is an eligible renovation. So can I enjoy the building refurbishment? Now, there are the first and second thresholds, as long as we can cross one of them, we will achieve our goal!

1. Threshold 1: If this is the company’s first renovation, you cannot enjoy building refurbishment

2. Threshold 2: If this is the company’s second/Nth renovation, and its renovation purpose is inconsistent with the last renovation purpose, you cannot enjoy building refurbishment. For example, the purpose for my first renovation is running a restaurant, I realized that I could not make any money after a while, so I decided to try other businesses such as fashion industry. The original restaurant was renovated into a fashion shop. The fashion shop and the restaurant are completely different businesses. So you can’t enjoy “building renovation” (building refurbishment).

To sum up, if you want to enjoy building refurbishment, it must be a eligible renovation, and the renovation must be the company’s second/Nth renovation. And the purpose of the renovation must be the same as the last one. Let’s take the last example, if the first purpose is running a restaurant, the second purpose is running a fashion store, and the third purpose changed back to running a restaurant.

The first and second time must not be able to enjoy building refurbishment, but what about the third time? The answer is no, because the purpose of the third time is inconsistent with the purpose of the last one (second time).

But if the purpose of the third time is for upgrading the fashion store, then the purpose is the same as the last (second time) purpose, so that the company can enjoy building refurbishment.

The above information is for reference only. If in doubt, we welcome your tax inquiries

What does it mean if the word “CORP” is printed in the business nature column of the business registration certificate? Once you find that your business registration certificate has “CORP” on it, the consequences can be big or small. If you don’t handle it properly, you will be fined and imprisoned at any time? This article will clear the above doubts for you.

What does “CORP” mean in the business nature of the business registration certificate?

If you find the word “CORP” after the “Nature of Business” column when you register a company in Hong Kong and apply for a business registration certificate, you need to pay more attention to avoid your company being sued by the Inland Revenue Department.

Many people don’t know the meaning of “CORP”. It turns out that as early as November 30, 2018, the Hong Kong Inland Revenue Department stipulated that all company corporations operating in Hong Kong, regardless of the form of business operation, should start their business operations. Business registration is required within one month from the start of the business, and the “Nature of Business” (or business scope) column is mandatory on the Business Registration Certificate.

The “CORP” in the column of business nature means that the public office “has no specific business restrictions, as long as it is a business that complies with the provisions of the company law, it can be operated.”

Therefore, the business nature of many newly registered companies is also “CORP” by default, allowing corporations to supplement the business nature when issuing them. Once the company fails to deal with the modification of the business nature in a timely manner, it will receive a penalty from the tax bureau at any time.

The nature of the business is “CORP”, what should I do?

If your company’s business registration certificate shows “CORP” for a long time, you will receive a “Notice of Incorporation Business Commencement” issued by the Business Registration Officer of the Inland Revenue Department. The proprietor will be required to add the nature of business. The proprietor should provide the business scope or nature of business as soon as possible to apply for a new business registration certificate, and please keep in mind that this is mandatory.

In the “Notice of Business Commencement of Corporations”, the Business Registration Ordinance is quoted, which stipulates that corporations registered in Hong Kong must supplement relevant business information, including business name, to the Inland Revenue Department in writing within one month after the actual business opening date. , business nature and description, business address and opening date, etc., or you can complete the form “IRBR200” and return it to the Inland Revenue Department for notification.

Among them, when filling in business, you should pay attention to the specification: use Chinese with no more than 28 characters; English with no more than 60 letters, including punctuation.

The business nature of a company registered in Hong Kong can be changed freely. If your company needs to change or increase its business nature due to reasons such as changing businesses or transferring companies, you should also apply for a new business registration certificate as described above. For some special industries such as banking, trust, construction, etc., you need to apply for a license to complete the procedures.

Penalty for not processing “CORP”

Once it is checked and it is found that the proprietor has not added “business nature” on the business registration certificate, it is illegal, and the court will issue a summons to the relevant proprietor to impose a fine or imprisonment on the company.

Consequences for failure to comply with the above are subject to a maximum fine of HK$5,000 and imprisonment for one year.

The above information is for reference only. If you have any questions about tax declaration and accounting, we welcome your inquiries.

According to Chapter 57 of the Employment Ordinance in Hong Kong, when either the employer or the employee chooses to terminate the employment contract, to say goodbye and handover properly, the other party needs to be informed of the “notice period”. Many people will wonder, can annual leave be taken during the notice period? Is it legal to offset the notice period? Is it necessary to make MPF contributions in lieu of notification funds? This article will summarize several common facets of payment in lieu of notice and answer them one by one.

Under what circumstances is the employer or employee not required to pay notice in lieu of notice?

Can An Employee Take Annual Leave During The Notice Period?

In this regard, Hong Kong’s “Employment Ordinance” has relevant provisions. Although employees who have been employed under a continuous contract for 12 months are entitled to paid annual leave, statutory annual leave is not allowed to be calculated or to replace the notice period.

If the employee does not leave the company early and works until the last day of the notice period, the employer should convert all unentitled annual leave into wages of the same number of days and compensate the employee with annual leave pay. Of course, when the notice of resignation takes effect, the employer still has the right to deny the employee’s leave. In many cases, the employer allows the employee to “clear the leave” to save unnecessary calculation costs. Therefore, in principle if the employer approves, the employee can use the annual leave. period to offset the notice period.

However, there was an individual case where an employee took pre-arranged annual leave during the notice period. The Court of Final Appeal later ruled that the restriction did not apply to the employee’s resignation, that is, the employee was entitled to take statutory annual leave within the notice period. Therefore, once there is a serious dispute, it can only be handed over to the court for the final ruling.

Do I Need To Make MPF Contributions In Lieu Of Notice?

Neither the employer nor the employee is required to make MPF contributions for the notice-in-place payment. According to the MPF Ordinance, employees, or self-employed persons between the age of 18 and under 65 are required to join the MPF scheme, but the payment in lieu of notice is not included in the “relevant income”.

Payment in lieu of notice is the compensation paid by the employer or employee for early termination of the employment contract due to failure to meet the notice period. It does not belong to the “relevant income” of the MPF scheme, and is not a remuneration, fee or commission for work or services., bonuses, bonuses, contract gratuities, gratuities, or allowances, so MPF contributions are not calculated.

The above information is for reference only. If you have any questions about payment in lieu of notice, labor law, the Employment Ordinance, or accounting, we welcome your inquiries.

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Taxpayers acquire real property to operate businesses. The related capital expenditures are not fully deductible. However, tax allowance can be claimed, one of which is the commercial building allowance. Only commercial and non-industrial buildings are qualifying expenditure. The annual commercial building allowance is at 4% per annum computed by reference to the cost of construction of the building.

Taxpayers acquire real property from developers, and their total cost of acquisition will include cost of land, cost of construction, and a profit margin for the developers. The Inland Revenue will not examine the developers’ accounts to ascertain the real cost of construction. The practice is that they will determine the cost of construction based on 50% of the acquisition price of the property as deemed cost of construction. Upon sales of the property in the future, they can get a full difference deduction if the construction cost is more than half of the acquisition price. On the contrary, if half of the property acquisition price is greater than the construction costs before settlement, then the difference will be taxable.

The above information is for reference only. Should you have more queries, we welcome your tax enquiries.

Holidays are happy days, but many employers are prone to misunderstanding the description of them in the Employment Ordinance, especially when there is a shortage of manpower during the peak season and fail to pay attention to the relevant provisions and restrictions on statutory holidays, which makes employers mistakenly violate Hong Kong’s labor laws and be punished. In addition to the prosecution, it also harms the rights and interests of employees. This article will sort out the restrictions and guidelines on statutory holidays in the Employment Ordinance for employers and employees to protect the rights and interests of employers.

“Statutory holiday” is not the same as a “public holiday”?

Under the protection of the Hong Kong Employment Ordinance, generally continuously employed employees are entitled to paid annual leave, statutory holidays, and rest days.

However, many people may not know the difference between “statutory holidays” and “public holidays”. According to the “General Holidays Ordinance”, employees of any organization can enjoy 12 “statutory holidays” (increased to 13 days from 2022), commonly known as “red days” and “labor leave”; while employees of some organizations (including government agencies), some enterprises) can enjoy a paid “public holiday” on the 17th of each year, commonly known as “bank leave”.

13 statutory holidays from 2022

Effective from 1 January 2022, all employees are entitled to the following 13 statutory holidays regardless of their length of service:

1. January 1st

2. Lunar New Year’s Day

3. The second day of the Lunar New Year

4. The third day of the Lunar New Year

5. Qingming Festival

6. Labor Day (May 1)

7. Buddha’s Birthday (New from 2022) *

8. Dragon Boat Festival

9. Hong Kong Special Administrative Region Establishment Day (July 1)

10. The day after the Mid-Autumn Festival

11. Double Ninth Festival

12. National Day (October 1)

13. Winter or Christmas (at employer’s choice)

From 2024, a new statutory holiday will be added every two years. The new statutory holiday and the total number of statutory holidays each year are as follows:

• Beginning in 2024, the “first Sunday after Christmas” holiday will be added, bringing the total number of statutory holidays to 14;

• Starting from 2026, a new holiday of “Easter Monday” will be added, bringing the total number of statutory holidays to 15;

• Beginning in 2028, a new “Good Friday” holiday will be added, bringing the total number of statutory holidays to 16;

• Beginning in 2030, a new “Following Good Friday” holiday will be added, bringing the total number of statutory holidays to 17.

Arrangements for employees to work on statutory holidays

Due to different industries and types of work, if employers require employees to work during statutory holidays, they must arrange other holidays and notify employees of relevant holiday arrangements in advance according to the following deadlines:

• The alternative holiday is within 60 days before the statutory holiday, the employer must notify the employee at least 48 hours before the alternative holiday;

• If the alternative holiday falls within 60 days after the statutory holiday, the employer must notify the employee at least 48 hours before the statutory holiday;

• If the employer and the employee mutually agree, the employer may arrange a substitute holiday for the employee within a period of 30 days before or after a statutory holiday or an alternative holiday.

Can statutory holidays be paid in lieu of leave?

According to the current Employment Ordinance, employers cannot use any form of payment in lieu of granting statutory holidays to employees who have served continuously for 3 months. The so-called “buying leave” behavior and refusing to grant employees statutory holidays are prohibited by law. It is an offense upon conviction, and the maximum penalty is a fine of HK$50,000. If the employer further deducts the employee’s salary to offset the statutory holiday pay, the fine will be as high as HK$100,000, and the penalty is imprisonment for 1 year.

Does a statutory holiday fall on a rest day?

If a statutory holiday and a rest day just overlap, the employer needs to arrange for the employee to take the statutory holiday as a substitute on the next working day (the day following a non-holiday).

In addition, employers cannot require employees to take rest days on statutory holidays, because employees are entitled to the two dates.

The above information is for reference only. If you have any questions about entrepreneurship, labor law, or accounting, we welcome your inquiries.