Provisional Income Tax Payment

[tinesebastian]

So today I received 'another' letter from the IR Department. Hope you guys are able to help and enlight me with the provisional tax payment approach.

My case:
- started to work in HK in November 2004
- received first letter from IR in November 2005 which I sent back in January 2006 (just addressing the periode of Nov04 - Mar05)
- I never got feedback from IR on this first declaration and assume (?) per my calculation that I would not have to pay tax for the first, short, periode
- received todays letter for periode of Apr05-Mar06

So I assume, the following will happen now:
- will prepare my declaration for last financial year (Apr05-Mar06)
- in October I will get the final assessment (?)
- in January the tax is due to be paid (?)

Please let me know in case I am wrong.

Now the real question in regards of the so called provisional tax payment. What will I actually have to pay in January 2007 then? Full amount of 05/06 tax I guess. And, the estimated tax for 06/07 as well? Means I pay twice tax in next January?

Appreciate your feedback in advance,
thanks, Sebastian

[PDLM]

I would expect that the total bill will the amount for November 04 to March 06 (i.e. 1.33 years) plus the provisional amount for April 06 to March 07. You might get lucky and not pay tax for November 04 to March 05 but I wouldn't bank on it.

You will have to pay 75% of that in January 2007 and 25% in April 2007.

The January 2007 will therefore be 2.33*0.75 = 1.75 years tax and the April 2007 amount will be 0.583 years tax.

However, in January 2007 you will have been in HK for over 2 years without paying any tax so this is a significantly better deal than a Pay As You Earn tax scheme.

[tinesebastian]

Understood. Still they will assess the time of:
* Nov04 - Mar05 and
* Apr05 - Mar06
seperately, correct?

I.e. in case no tax payment applicable for the first 0.33 years they will only consider the 05/06 year ... ?

[PDLM]

On reviewing the IRD website again then it seems there is no "pro rata" provision, so assuming that your income for the period Nov 04 - Mar 05 was below the relevant tax-free allowance for that year then you won't be liable for any tax. The tax-free amounts for that year were HK$100K for single, $200K if married, + $30K per child (rises to $40K from 05/06 onwards).

http://www.ird.gov.hk/eng/pdf/pam43e.pdf
http://www.ird.gov.hk/eng/pdf/pam61e.pdf
may be useful.

[tinesebastian]

Great, tks for ur feedback indeed.

Onbe beauty of the HK tax system I found just now is that (as in my case) a not married couple with a kid enjoys the same allowance as a married couple. I.e. 100k basic + 100k single parent (as not married) + 30k for the kid.