Expenses that are incurred for producing profits chargeable to Hong Kong profits tax and that are not capital in nature are generally tax deductible. In addition, special tax allowances are available for certain capital expenditures. On the other hand, there are special rules for deduction of certain expenses.
In general, a bad or doubtful debt incurred in any trade, business, or profession, proved to the satisfaction of the Inland Revenue Department to have become bad during the basis period for a year of assessment, is deductible. The deduction is limited to debts that were included as a trading receipt in ascertaining the taxpayer’s assessable profits. If any bad or doubtful debt that has previously been allowed as a deduction is recovered, it will be treated as taxable profits of the basis period in which it is recovered.
A deduction is allowed for cash donations to approved charities made in the basis period for a year of assessment if the aggregate of such donations is not less than HK$100. The deduction is limited to 35% of the assessable profits of the year of assessment. In other words, no deduction is allowed if the company was loss making in that year of assessment and the deduction cannot be carried forward.
Taxes paid on profits are generally not deductible for the purpose of calculating the assessable profits. A foreign tax that is not calculated by reference to profits (e.g. VAT) may be considered as deductible under the general deduction provision.