Setting up

Sole proprietorship tax and records

Profits go on Part 5 of your BIR60, not a separate company return — 7.5% / 15% two-tier rates for unincorporated businesses, and you must tell the IRD when particulars change.

At a glance

Tax return: Part 5 of BIR60 (Individuals)
Two-tier rates: 7.5% first HK$2m, 15% above (unincorporated)
Accounts to IRD: Required if gross income exceeds HK$2m
Change notifications: Address, name, nature, cessation — within one month

A sole proprietorship does not file a standalone company profits tax return in the normal case. TheInland Revenue Departmenttreats you as self-employed: business profits are reported on your individual tax return, alongside salary and other personal income. Keep records from day one — the IRD can ask for them even when you do not attach accounts to the return.

Which return to use

If you owned the sole proprietorship for the full basis period for the year of assessment, report profits or losses in Part 5 of your Tax Return — Individuals (BIR60). Tick “Yes” to indicate you have a sole-proprietorship business and complete the remaining Part 5 boxes.

If the business was a partnership, or changed between partnership and sole proprietorship during the basis period, use Profits Tax Return BIR52 instead. The IRD’sreporting guide for sole proprietorswalks through Part 5 line by line.

Adjusting profit for tax

Start from net profit per your accounts, then add back non-deductible items and claim allowable deductions under the Inland Revenue Ordinance. Common add-backs include salaries or drawings to yourself or your spouse, private domestic expenses, capital expenditure charged to revenue, and MPF contributions above the statutory limit. The IRD publishes a proforma profits tax computation (IR957A) to help.

Allowable business expenses — rent for business premises, staff wages, business utilities, mandatory MPF for employees, and approved charitable donations within the cap — can be deducted. Personal living costs cannot.

Two-tier rates

Unincorporated businesses pay the two-tier profits tax rates: 7.5% on the first HK$2 million of assessable profits and 15% above that. Only one entity among connected entities may use the lower tier in a year. Companies use 8.25% and 16.5% instead. Thetwo-tier profits taxguide and the IRD’stwo-tier FAQcover the election. Personal Assessment is a separate election that can produce a different bill when you have several income types — that is a calculation for your tax adviser, not something we can generalise here.

When to attach accounts

If gross income of the sole proprietorship does not exceed HK$2,000,000 for the basis period, you are not required to attach financial statements to BIR60. You must still prepare accounts, complete the return consistently with those accounts, and retain them. If gross income exceeds HK$2,000,000, submit accounts with the return.

Business registration upkeep

Beyond tax, notify the Business Registration Office within one month of:

Change of business address
Change of business name
Change of business nature
Cessation of business

Notifications can be filed online througheTAX. After address, name or nature changes, an amended Business Registration Certificate is sent to the business address.

Renew the Business Registration Certificate before it expires. Display the valid certificate at the place of business — including a printed copy if the certificate is electronic.

Questions people ask

Which tax return do I use?

If you owned the sole proprietorship for the full basis period, report profits or losses in Part 5 of your Tax Return — Individuals (BIR60). If the business was a partnership, or changed between partnership and sole proprietorship during the year, use Profits Tax Return BIR52 instead.

Do I need to attach accounts every year?

If gross income of the sole proprietorship does not exceed HK$2,000,000 for the basis period, you are not required to attach financial statements to BIR60. You must still prepare accounts, complete the return from those accounts, and retain them — the IRD may ask for them later.

What must I tell the IRD after registration?

Notify the Business Registration Office within one month of any change of business address, business name or business nature, and of cessation of business. Changes can be submitted online through eTAX. An amended Business Registration Certificate is posted after address, name or nature changes.