Deductible Business Expenses in Hong Kong

An expense recorded in the accounts is not automatically deductible for Hong Kong profits tax. Its purpose, connection with producing assessable profits and relevant restrictions need to be considered.

Keep the business explanation Retain the invoice and evidence of what was purchased and why. Separate private expenditure from company costs. Where an expense serves more than one purpose, discuss the appropriate treatment instead of claiming the whole amount without review.

Distinguish capital from revenue Buying an enduring asset may have a different treatment from paying an ordinary operating expense. Allowances or specific deductions can matter. Do not classify a purchase solely by the size of its invoice.

Review special items Financing costs and related party payments can have additional conditions. A transfer to a founder needs to be understood as salary, reimbursement, loan repayment, distribution or another genuine transaction, not simply labelled an expense.

Reconcile adjustments The computation should explain how accounting profit changes into assessable profit. Keep reasons and supporting records for material adjustments.

For software used partly by the founder personally, the accountant needs the actual use and contract details. A company card statement alone does not establish deductibility. Discuss uncertain items when they occur, particularly significant purchases and owner arrangements, so year end work is based on evidence rather than guesses.