Question

1. Assuming that the office is sold at $7,000,000 after BCC Ltd has moved out. Discuss the factors which need to be considered in determining whether Mr Lee will likely be subject to profits tax in Hong Kong in respect of the disposal gain from the sale of office with reference to the relevant tax principles and prevailing practice of the Inland Revenue Department.

Answer 1

As per the Inland Revenue Department, Hong Kong adopts a territorial source Principal od taxation which means only profits that have a source in Hong Kong are taxable here. In this case, the factors which need to be considered in determining whether Mr. Lee will likely to be subject to profit tax in Honk Kong in respect of the disposal gain from the sale of office is:

Section 14 of the Inland Revenue Ordinance provides that profits tax shall be charged on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding profits arising from the sale of capital assets). Section 2 of the Inland Revenue Ordinance states that “trade” includes every adventure and concern in the nature of trade.