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INLAND REVENUE ORDINANCE

INLAND REVENUE ORDINANCE (Added 7 of 1975 s. 12. Amended 7 of 1986 s. 12) 18E. Change of accounting date and apportionments (1) Where the assessable profits of a person from any trade, profession or business carried on in Hong Kong have been computed by reference to an account made up to a certain day in any year of assessment and either- (Amended 7 of 1986 s. 12) (a) that person fails to make up an account to the corresponding day in the following year of assessment; or (b) that person makes up accounts to more than one day in the following year of assessment, then- (i) the assessable profits from that source for the year of assessment in which the circumstances described in either paragraph (a) or (b) prevail shall be computed on such basis as the Commissioner thinks fit; and (ii) the assessable profits for the year preceding that year of assessment shall be recomputed on such basis as the Commissioner thinks fit.

(2) For the purposes of subsection (1)- (a) where the accounts of any trade, profession or business are made up to the end of the Lunar year, the Commissioner may accept those accounts as being made up to a corresponding day in each year of assessment; and (b) in the case of a trade, profession or business which was commenced on or after 1 April 1974, the Commissioner may, if he considers it necessary, make a computation under subsection (1) in respect of a basis period which exceeds 12 months.

(3) For the purposes of this Part, where in the case of a trade, profession or business it is necessary in order to arrive at the assessable profits or the losses for any year of assessment to divide or apportion to specific periods the profits and losses for any period for which accounts have been made up, or to aggregate any such profits or losses or any apportioned parts thereof, it shall be lawful to make such division and apportionment or aggregation, and any such apportionment shall be made in proportion to the number of days or months in the respective periods unless the. Commissioner, having regard to any special circumstances, otherwise directs.

(4) For the purposes of section 18D (2A), where in the case of a trade, profession or business it is necessary in order to arrive at the profits or losses for any period to divide or apportion to specific periods the profits and losses for any period for which accounts have been made up, or to aggregate any such profits or losses or any apportioned parts thereof, the Commissioner may make such division and apportionment or aggregation as he may deem proper in that case. (Added 34 of 1980 s. 3) (Added 7 of 1975 s. 12) 18F. Adjustment of assessable profits (1) The amount of assessable profits for any year of assessment of a person chargeable to tax under this Part shall be increased by the amount of any balancing charge directed to be made on that person under Part VI and decreased by the allowances made to that person under Part VI for that year of assessment to the extent to which the relevant assets are used in the production of the assessable profits.

(2) When in any year of assessment the amount of the allowances made under Part VI to any person chargeable to tax under this Part exceeds the total amount of that person's assessable profits, as increased by any balancing charge, the amount of such excess shall, for the purposes of section 19C, be deemed to be a loss of that person for that year of assessment.

(3) This section shall apply to the year of assessment commencing on 1 April 1975 and to subsequent years of assessment.

(Added 7 of 1975 s. 12) 19. Treatment of losses (1) Subject to the provisions of subsection (3) where a loss is incurred in any year of assessment up to and including the year of assessment commencing on 1 April 1974 by a person chargeable to tax under this Part the amount of such loss attributable to activities in Hong Kong shall notwithstanding the provisions of section 70 be set off against what would otherwise have been the assessable profits of such person for that year of assessment. (Amended 49 of 1956 s. 15; 7 of 1975 s. 13; 7 of 1986 s. 12) (2) Where the amount of loss which may set off under subsection (1) is such that it cannot be wholly set off against the assessable profits of a person chargeable to tax under this Part for the year of assessment in which the loss occurred, the amount not so set off shall be carried forward and shall be set off against what would otherwise have been assessable profits of that person for the future years of assessment in succession: Provided that- (a) the amount of any such loss allowed to be set off in computing the assessable profits for any year of assessment shall not be set off in computing the assessable profits for any other year of assessment; and (b) where a loss is set off under this subsection in respect of the year of assessment commencing on 1 April 1975 or any subsequent year of assessment, that loss shall be set off before the set off of any loss under section 19C. (Replaced 7 of 1975 s. 13) (3) For the avoidance of doubt, it is hereby declared that losses incurred during the basis period for any year of assessment prior to that commencing on 1 April 1955, shall be ascertained and treated in accordance with the relevant provisions of this Ordinance in force on 31 March 1955.

(4) Notwithstanding anything in subsection (3), where a loss is sustained in respect of the basis period for the year of assessment commencing on 1 April 1955, such part of such loss as is attributable to that portion (including the whole) of the basis period which is prior to 1 April 1955, shall for the purposes of this section be deemed to have been sustained during the said year of assessment.

(Replaced 36 of 1955 s. 28) 19A. Computation of losses (1) For the purposes of section 19, the amount of a loss incurred by a person chargeable to tax under this Part shall, subject to the provisions of subsection (2) of this section, be computed in a like manner as assessable profits are computed. (2) Where the assessable profits of a person chargeable to tax under this Part are computed in accordance with section 18 (2) by reference to accounts for a period ending on some day other than 31 March in the year prior to the year of assessment, any loss which may be set off under the provisions of section 19 shall be computed by reference to such person's accounts for a similar period ending on the same day in the year of assessment, and the loss so computed shall be deemed to be the loss incurred by such person in that year of assessment.

(3) Where a person commences to carry on a trade, profession or business in Hong Kong within the year of assessment commencing on 1 April 1974, any loss incurred by that person in that year of assessment shall be computed by reference to such person's accounts for a similar period as that person's accounts for a similar period as that person's assessable profits would have been computed under section 18C. (Added 7 of 1975 s. 14.

Amended 7 of 1986 s. 12) (4) Subsections (1) and (2) shall apply to the years of assessment up to and including the year of assessment commencing on 1 April 1974. (Added 7 of 1975 s. 14) (Added 49 of 1956 s. 16) 19B. Approved charitable donations (1) Subject to subsection (2), a person chargeable to tax under this Part may deduct the aggregate of approved charitable donations made by that person in the basis period for a year of assessment, if such aggregate is not less than $100, from what would otherwise have been the assessable profits of such person for that year of assessment after first giving effect, where appropriate, to section 19.

(2) A person shall not be entitled under subsection (1) to deduct for any year of assessment- (a) any sum which is allowable as a deduction under section 16, 16B or 16C; (b) a sum exceeding 10% of the assessable profits of that person for that year.

(3) This section shall apply to the year of assessment up to and including the year of assessment commencing on 1 April 1974. (Added 7 of 1975 s. 15) (Added 65 of 1970 s. 5) 19C. Treatment of losses after 1 April 1975 (1) Where in any year of assessment- (a) an individual sustains a loss in any trade, profession or business carried on by him; and (b) the individual or, in the case of a husband and wife, not being a wife living apart from her husband, the husband or wife does not elect for personal assessment under section 41 for that year of assessment, the amount of that loss shall be carried forward and set off against the amount of his assessable profits from that trade, profession or business for subsequent years of assessment. (Amended 71 of 1983 s. 17; 43 of 1989 s. 9) (2) Where in any year of assessment- (a) an individual incurs a share of a loss of a partnership in any trade, profession or business carried on by that partnership; and (b) the individual or, in the case of a husband and wife, not being a wife living apart from her husband, the husband or wife does not elect for personal assessment under section 41 for that year of assessment, the amount of that share of the loss shall be carried forward and set off against the amount of his share of assessable profits of the partnership from that trade, profession or business for subsequent years of assessment: (Amended 71 of 1983 s. 17; 43 of 1989 s. 9) Provided that where at the end of the year of assessment commencing on 1 April 1983 a share of a loss to be carried forward under this subsection is one that was incurred by a husband and wife, not being a wife living apart from her husband, in partnership with each other, whether or not also with other persons- (i) the share of the loss shall be deemed to be apportioned between the husband and wife in the proportions in which they were entitled to share profits between themselves as at the last day of the basis period for that year of assessment; and (ii) each such portion of the share of the loss shall be carried forward and set off against the husband's or, as the case may be, the wife's respective share of assessable profits of the partnership from that trade, profession or business for subsequent years of assessment. (Added 71 of 1983 s. 17) (3) Where in any year of assessment an individual has sustained a loss or has incurred a share of a loss of a partnership and- (a) is personally assessed under Part VII; or (b) in the case of a husband and wife, not being a wife living apart from her husband, the husband or wife is personally assessed under Part VII, (Replaced 43 of 1989 s. 9) the amount of the loss or share of the loss shall be dealt with in accordance with that Part. (Replaced 71 of 1983 s.

17) (4) Where in any year of assessment a corporation or a person, who is not an individual, a partnership or a corporation, carrying on a trade, profession or business sustains a loss in that trade, profession or business, the amount of that loss shall be set off against the assessable profits of the corporation or person (including its share of the assessable profits of a partnership in which it is a partner) for that year of assessment and to the extent not so set off, shall be carried forward and set off against the corporation's or the person's assessable profits and its share of assessable profits of such a partnership for subsequent years of assessment.

(5) Where- (a) a trade, profession or business is carried on in Hong Kong by persons in partnership and any one of those persons is a corporation or is a person who is not an individual, a partnership or a corporation; and (Amended 7 of 1986 s. 12) (b) in any year of assessment a loss is incurred in that trade, profession or business, then the corporation's or the person's share of that loss shall be set off against the assessable profits of the corporation or the person for the year of assessment in which the loss was incurred and to the extent not so set off, be carried forward and, for subsequent years of assessment, be set off first against the corporation's or the person's share of the assessable profits of such partnership and, to the extent not so set off, then against the assessable profits of the corporation or the person. (6) For the purposes of this section- (a) the amount of any loss set off in computing the assessable profits for any year of assessment shall not be set off in computing the assessable profits for any other year of assessment; (b) the amount of any loss carried forward to any year of assessment to be set off against the assessable profits for that year shall not be set off more than once in that year of assessment; (c) the total amount set off against assessable profits shall not exceed the amount of the loss; (d) the amount of any loss to be set off under this section shall be the loss attributable to activities in Hong Kong; (Amended 7 of 1986 s. 12) (e) the amount of any loss sustained in any trade, profession or business carried on for the benefit of a trust by a person in his capacity as trustee shall not be available for set off except against the assessable profits of that trust from that trade, profession or business for subsequent years of assessment. (Added 30 of 1981 s. 4) (7) For the purposes of this section- (a) "partnership" does not include a partnership (other than a partnership referred to in section 345 (2) of the Companies Ordinance (Cap. 32) consisting at any time in the year of assessment of more than 20 partners; (b) in calculating the number of partners in a partnership, there shall be included every partner in any other partnership which is itself a partner in the first-mentioned partnership. (Replaced 51 of 1978 s. 9) (8) This section shall apply to the year of assessment commencing on 1 April 1975 and to subsequent years of assessment.

(Added 7 of 1975 s. 16) 19D. Computation of losses after 1 April 1975 (1) For the purposes of section 19C, the amount of loss incurred by a person chargeable to tax under this Part for any year of assessment shall be computed in like manner and for such basis period as the assessable profits for that year of assessment would have been computed.

(2) This section shall apply to the year of assessment commencing on 1 April 1975 and to subsequent years of assessment.

(Added 7 of 1975 s. 16) 19E. Adjustment of losses (1) For the purposes of section 19D, the amount of loss for any year of assessment of any person chargeable to tax under this Part shall be increased by the allowances made to that person under Part VI for that year of assessment to the extent to which the relevant assets are used in the production of the losses and decreased by the amount of any balancing charge directed to be made on that person under Part VI. (2) Where in any year of assessment the amount of the balancing charge made under Part VI to a person chargeable to tax under this Part exceeds the total amount of that person's losses, as increased by any allowances, the amount of such excess shall be deemed to be assessable profits of that person for that year of assessment.

(3) This section shall apply to the year of assessment commencing on 1 April 1975 and to subsequent years of assessment.

(Added 7 of 1975 s. 16) 20. Liability of certain non-resident persons (1) For the purposes of this section- (a) a person is closely connected with another person where the Commissioner in his discretion considers that such persons are substantially identical or that the ultimate controlling interest of each is owned or deemed under this section to be owned by the same person or persons; (b) the controlling interest of a company shall be deemed to be owned by the beneficial owners of its shares, whether held directly or through nominees, and shares in one company held by or on behalf of another company shall be deemed to be held by the shareholders of the last- mentioned company.

(2) Where a non-resident person carries on business with a resident person with whom he is closely connected and the course of such business is so arranged that it produces to the resident person either no profits which arise in or derive from Hong Kong or less than the ordinary profits which might be expected to arise in or derive from Hong Kong, the business done by the non-resident person in pursuance of his connection with the resident person shall be deemed to be carried on in Hong Kong, and such non-resident person shall be assessable and chargeable with tax in respect of his profits from such business in the name of the resident person as if the resident person were his agent, and all the provisions of this Ordinance shall apply accordingly. (Amended 36 of 1955 s. 29; 7 of 1986 s. 12) 20A. Persons chargeable on behalf of a non-resident (1) A non-resident person shall be chargeable to tax either directly or in the name of his agent in respect of all his profits arising in or derived from Hong Kong from any trade, profession or business carried on in Hong Kong whether such agent has the receipt of the profits or not, and the tax so charged whether directly or in the name of the agent shall be recoverable by all means provided in this Ordinance out of the assets of the non-resident person or from the agent. Where there are more agents than one they may be charged to tax jointly or severally in respect of the profits of the non-resident person and shall be jointly and severally liable for the tax thereon. (Amended 7 of 1986 s. 12) (2) Every person chargeable to tax as agent, or from whom tax is recoverable in respect of the profits of another person, shall retain out of any assets coming into his possession or control on behalf of such other person or in his capacity as agent so much thereof as shall be sufficient to produce the amount of such tax, and he shall be and is hereby indemnified against any person whomsoever in respect of his retention of such assets.

(3) Notwithstanding anything contained in subsections (1) and (2), any person who sells any goods in Hong Kong on behalf of a non-resident person shall furnish quarterly to the Commissioner a return showing the gross proceeds from such sales and shall at the same time pay to the Commissioner a sum equal to 1% of such proceeds or such lesser sum as may have been agreed with the Commissioner. On receipt of such sum the Commissioner shall issue a certificate in the form specified by the board of Inland Revenue: (Amended 39 of 1969 s. 3; 7 of 1986 s. 12) Provided that the Commissioner may exempt any such person from the provisions of this subsection on such conditions as he may consider fit.

(Added 49 of 1956 s. 17) 20B. Persons chargeable in respect of certain profits of a non-resident (1) Without prejudice to section 20A, this section applies in respect of a non-resident person who is chargeable to tax in respect of- (a) sums deemed by virtue of section 15 (1) (a) or (b) to be receipts arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong; or (b) sums received in respect of, or which in any way derive directly or indirectly from, the performance in Hong Kong by a non-resident entertainer or sportsman (whether or not he is the non- resident person who is so chargeable) of an activity in his character as entertainer or sportsman on or in connection with a commercial occasion or event, including- (i) any appearance of the entertainer or sportsman by way of or in connection with the promotion of any such occasion or event; and (ii) any participation by the entertainer or sportsman in or for sound recording, films, videos, radio, television or other similar transmissions (whether live or recorded). (2) Where this section applies, the non- resident person is chargeable to tax in respect of the sums described in subsection (1) in the name of any person in Hong Kong who paid or credited those sums to that or any other non-resident person, and the tax so charged shall be recoverable by all means provided in this Ordinance from that person in Hong Kong.

(3) Where a person in Hong Kong from whom tax is recoverable by virtue of this section pays or credits to a non-resident person (whether or not he is the non-resident person who is chargeable to tax) sums described in subsection (1) he shall, at the time he makes the payment or credit, deduct from those sums so much thereof as in sufficient to produce the amount of such tax, and he is hereby indemnified against any person in respect of his deduction of such sum.

(4) In this section- "entertainer or sportsman" means a person, other than a corporation, who gives performances (whether alone or with others) in his character as entertainer or sportsman in any kind of entertainment or sport, including any activity of a physical kind which (whether in a live or recorded form) the public or any section of the public is or may be permitted (whether for payment or not) to see or hear; "commercial occasion or event" includes any description of occasion or event- (a) for which an entertainer or sportsman (or other person) might, by virtue of his performance of the activity, receive or become entitled to receive anything by way of cash or any other form of property; or (b) which is designed to promote commercial sales or activity by advertising, the endorsement of goods or services, sponsorship, or other promotional means of any kind. (Added 4 of 1989 s. 2) 21. Assessable profits of certain businesses to be computed on a percen- tage of the turnover Where the true amount of the assessable profits arising in or derived from Hong Kong of a non-resident person in respect of a trade, profession or business carried on in Hong Kong cannot be readily ascertained, such assessable profits may be computed on a fair percentage of the turnover of that trade or business in Hong Kong. (Amended 36 of 1955 s. 30; 7 of 1975 s. 17; 7 of 1986 s. 12) 21A. Computation of assessable profits from cinematograph films, patents, trademarks, etc.

The assessable profits of a person arising in or derived from Hong Kong in respect of a sum deemed by section 15 (1) (a) or (b) to be a receipt arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong shall, for the purposes of this Ordinance and notwithstanding any other provisions of this Part, be taken to be 10% of such sum.

(Added 2 of 1971 s. 14. Amended 7 of 1975 s. 18; 7 of 1986 s. 12) 22. Assessment of partnerships (1) Where a trade, profession or business is carried on by 2 or more persons jointly the assessable profits therefrom shall be computed in one sum and the tax in respect thereof shall be charged in the partnership name. (Replaced 36 of 1955 s. 31) (2) The precedent partner shall make and deliver a statement of the profits or losses of such trade, profession or business, on behalf of the partnership, ascertained in accordance with the provisions of this Part relating to the ascertainment of profits. Where no active partner is resident in Hong Kong the return shall be furnished by the manager or agent of the partnership in Hong Kong. (Amended 7 of 1986 s. 12) (3) If a change occurs in a partnership of persons carrying on any trade, profession or business, by reason of retirement or death, or the dissolution of the partnership as to one or more of the partners, or the admission of a new partner, in such circumstances that one or more of the persons who until that time were engaged in the trade, profession or business continue to be engaged therein, or if a person previously engaged in any trade, profession or business on his own account continues to be engaged in it, but as a partner in a partnership, the tax payable by the person or persons who carry on the trade, profession or business after that time shall, notwithstanding the change be computed on what would otherwise have been the assessable profits of such person or persons or the aggregation of such assessable profits as if no such change had occurred: (Amended 30 of 1950 Schedule; 36 of 1955 s. 31; 49 of 1956 s.

18; 7 of 1975 s. 19) Provided that on application made in writing by all the persons engaged in the trade, profession or business which was commenced before 1 April 1975 both immediately before and immediately after the change, and signed by all of them or, in the case of a deceased person, by his legal representative, and received by the assessor within 2 years after the change took place, the assessor shall compute the profits for any year of assessment up to and including the year commencing on 1 April 1974 as if the trade, profession or business had been discontinued at the date of the change and a new trade, profession or business had been then set up and commenced. (Amended 30 of 1950 Schedule; 49 of 1956 s. 18 7 of 1975 s. 19) (4) Tax upon the partnership shall be recoverable by all means provided in this Ordinance out of the assets of the partnership, or from any partner.

(Amended 36 of 1955 s. 31) (5) Tax may be assessed on the profits of a partnership notwithstanding the cessation or dissolution of such partnership and shall be recoverable from the former partners and from the assets of the partnership at the time of its cessation.

22A. Ascertainment of share of partnership profits or losses (1) In order to ascertain the share of a partner of the assessable profits or losses of a partnership, such assessable profits or losses for the relevant year of assessment shall be apportioned amongst the persons who were partners during the basis period in the ratio in which the profits or losses of the basis period for that year of assessment were divided; and the profits or losses as so apportioned shall constitute the shares of the assessable profits and losses of the individual partners for that year of assessment.

(2) For the purposes of subsection (1), there shall be excluded from the assessable profits of a partnership any loss brought forward under section 19C.

(3) For the purposes of this section- (a) "partnership" does not include a partnership (other than a partnership referred to in section 345 (2) of the Companies Ordinance (Cap. 32) consisting at any time in the year of assessment of more than 20 partners; (b) in calculating the number of partners in a partnership, there shall be included every partner in any other partnership which is itself a partner in the first-mentioned partnership. (Replaced 51 of 1978 s. 9) (Added 7 of 1975 s. 20) 22B. Limited partner loss relief (1) In this section- "limited partner" means a person who is a partner in a partnership which is carrying on a trade, profession or business and that person is- (a) a limited partner in a limited partnership registered under the Limited Partnerships Ordinance (Cap. 37); (b) a general partner in a partnership in which he is not entitled to or does not take part in the management of the partnership but is entitled to have his liabilities, or his liabilities beyond a certain limit, for debts or obligations incurred by the partnership for the purposes of the trade, profession or business discharged or reimbursed by some other person; or (c) under the law of any place outside Hong Kong, not entitled to or does not take part in the management of the partnership and is not liable beyond a certain limit for debts or obligations incurred by the partnership for the purposes of the trade, profession or business; "relevant sum" means the amount of the person's contribution to the partnership as at the end of the relevant year of assessment in which the loss is sustained, except that where the person ceased to be a partner in the partnership during that year of assessment it is the time when he so ceased.

(2) For the purposes of this section, a person's contribution to the partnership at any time is the aggregate of- (a) the amount which he has contributed to it as capital less the sum of- (i) the amounts of capital that he has directly or indirectly drawn out or received back; and (ii) anything that he is or may be entitled at any time while the partnership carries on the trade, profession or business to draw out, receive back or be reimbursed from another person, whether or not the entitlement is enforceable or is pursuant to an unenforceable undertaking or practice; and (b) the amount of any profits or gains of the partnership to which he is entitled but which he has not received in money or money's worth.

(3) Notwithstanding section 19C, where in any year of assessment a person who is a limited partner in a partnership has incurred a share of a loss of that partnership the amount of the loss which may be set off against the assessable profits of the person is limited to the lesser of- (a) the amount of the loss; or (b) the relevant sum.

(4) This section applies to years of assessment that commence on or after 1 April 1991 and to that part of any basis period for a year of assessment that occurs on or after 15 November 1990 but before 1 April 1991 but does not apply in respect of a share of a loss incurred under a transaction which was the subject of an application for advance clearance made to the Commissioner before 15 November 1990 and the Commissioner before or after that date expressed the opinion that the transaction would not fall within the terms of section 16A or, where no such application was made in respect of a loss incurred under a transaction entered into before that date, the transaction is, in the Commissioner's opinion, of the same type as any for which, in the circumstances prevailing as at 14 November 1990, he would have expressed the opinion that the transaction would not fall within the terms of section 61A.

(Added 15 of 1992 s. 3) 23. Ascertainment of assessable profits of life insurance corporations (1) The assessable profits for any year of assessment of a corporation, whether mutual or proprietary, from the business of life insurance, shall- (a) be deemed to be 5% of the premiums from life insurance business in Hong Kong of the corporation during the basis period for that year, or (Amended 7 of 1986 s. 12) (b) should the corporation so elect, be that part of the adjusted surplus ascertained in accordance with the provisions of subsections (2) to (7) deemed to arise in the basis period for that year less any dividend received which is required to be excluded by virtue of section 26 (a): (Amended 49 of 1956 s. 19) Provided that- (i) any such election once made shall be irrevocable and in addition shall be deemed to apply to all future years of assessment; and (Added 49 of 1956 s. 19) (ii) until such part of the adjusted surplus is ascertained, the assessable profits shall be calculated provisionally in accordance with paragraph (a) of this subsection, and tax charged and collected as if no such election had been made. (Amended 49 of 1956 s. 19) (2) A corporation which elects to be assessed in the manner provided in subsection (1) (b) shall submit to the Commissioner a certified true copy of the latest abstract of the report of the actuary submitted to the Insurance Authority under section 18 of the Insurance Companies Ordinance (Cap. 41) or, in the case of a corporation to which section 52 (3) of that Ordinance applies, a copy of the latest such abstract submitted under that section. (Replaced 11 of 1985 s. 2) (3) Any election under subsection (1) (b) shall be effective only if the actuarial report is submitted not later than 2 years after the end of the period in respect of which it is made. Where an effective election has been made it shall be lawful to give effect to such election notwithstanding the provisions of section 70. (Amended 49 of 1956 s. 19) (4) (a) The surplus shall be the amount by which the life insurance fund exceeds the estimated liability of the corporation on the life insurance fund at the end of the period in respect of which any actuarial report is made.

(b) The adjusted surplus shall be ascertained by adding to the surplus- (i) any deficit in respect of a period prior to the period in respect of which the relevant actuarial report is made where such deficit is included in such report; (ii) any outgoing or expense charged against the life insurance fund in the relevant actuarial report which is not such that it would be allowed as a deduction in ascertaining assessable profits under the provisions of section 16; (iii) any expense disbursement or loss charged against the life insurance fund in the relevant actuarial report which is such that it would not be allowed as a deduction in ascertaining assessable profits by reason of the provisions of section 17; (iv) any income or profits of the corporation arising in the period in respect of which the relevant actuarial report is made, not being profits from the business of insurance other than life insurance, and not credited to the life insurance fund in such report; (v) any appropriations of profits or transfers to reserve charged against the fund during the period in respect of which the relevant actuarial report is made, other than appropriations or transfers to policy holders in their capacity as such; (va) the amount of a balancing charge directed to be made under Part VI, (Added 7 of 1975 s. 21) and by deducting therefrom- (vi) any surplus disclosed by a previous actuarial report which has been retained in the life insurance fund in the relevant actuarial report; (vii) any transfer or appropriation to policy holders in their capacity as such, effected during the period in respect of which the relevant actuarial report is made where such transfer or appropriation has not been charged against the life insurance fund in such report; (viii) any outgoing or expenses not charged against the life insurance fund during the period in respect of which the relevant actuarial report is made which is such that it would be deducted in ascertaining assessable profits under the provisions of section 16; (ix) any receipt of a capital nature, or transfer from reserve, credited to the life insurance fund during the period in respect of which the relevant actuarial report is made; (x) the allowances provided by Part VI to the extent to which the relevant assets are used in the production of the adjusted surplus. (Added 7 of 1975 s. 21) (5) Notwithstanding anything contained in subsection (4) the adjusted surplus of a corporation which transacts life insurance business both within Hong Kong and elsewhere shall be the adjusted surplus ascertained in accordance with the provisions of the said subsection (4) less that portion of such adjusted surplus as is not deemed under the provisions of subsection (6) to be profits arising in or derived from Hong Kong.

(Amended 7 of 1986 s. 12) (6) Where a corporation transacts life insurance business both within Hong Kong and elsewhere, the portion of the adjusted surplus ascertained in accordance with the provisions of subsection (4) which shall be deemed to be profits arising in or derived from Hong Kong is the amount which bears the same proportion to the adjusted surplus so ascertained as the aggregate of the premiums from life insurance business in Hong Kong for the period of the relevant actuarial report bears to the aggregate of the premiums from the whole of the corporations life insurance business for that period. (Amended 7 of 1986 s. 12) (7) Any adjusted surplus ascertained in accordance with the foregoing provisions shall be deemed to arise during the years or other periods which make up the period in respect of which the relevant actuarial report is made in the proportion which the aggregate of the premiums from life insurance business in Hong Kong in each such period bears to the aggregate of such premiums for the total period in respect of which the relevant actuarial report is made. (Amended 49 of 1956 s. 19; 7 of 1986 s. 12) (8) (a) Where the making of the adjustments required by subsection (4) results in a deficit, such deficit shall be deemed to be the loss sustained by the corporation during the period in respect of which the relevant actuarial report is made. (b) In ascertaining for the purposes of sections 19 and 19C what part of such loss so calculated is attributable to activities in Hong Kong the provisions of subsections (5) and (6) shall apply mutatis mutandis. (Amended 11 of 1985 s. 2) (c) Any such loss attributable to activities in Hong Kong shall be deemed to have been sustained during the years which make up the period in respect of which the relevant actuarial report is made in the proportion which the aggregate of the premiums from life insurance business in Hong Kong in each such year bears to the aggregate of such premiums for the total period in respect of which the relevant actuarial report is made.

(Amended 49 of 1956 s. 19; 7 of 1986 s. 12) (9) In this section- "actuarial report" means any abstract referred to in subsection (2); (Added 11 of 1985 s. 2) "life insurance business" means business of the following classes as specified in Part 2 of the First Schedule to the Insurance Companies Ordinance (Cap. 41)- A Life and annuity; B Marriage and birth; C Linked long term; E Tontines, and references to a "life insurance fund" shall be construed accordingly; (Replaced 11 of 1985 s. 2) "premiums from life insurance business in Hong Kong" includes- (a) all premiums received or receivable in Hong Kong from both residents and non-residents; and (b) all premiums receivable outside Hong Kong from residents of Hong Kong where such premiums are in respect of policies the proposals for which were received by the corporation in Hong Kong.

Provided that any such premiums returned to the insured and any corresponding premiums paid on reinsurance shall be deducted from the premiums so receivable. (Amended 7 of 1986 s. 12) (Replaced 36 of 1955 s. 32) 23A. Ascertainment of assessable profits of insurance corporations other than life insurance corporations (1) The assessable profits of a corporation, whether mutual or proprietary, from the business of insurance other than life insurance, shall be ascertained by taking the gross premiums from such insurance business in Hong Kong less any such premiums returned to the insured and any premiums paid on corresponding reinsurance and adding thereto any interest or other income arising in or derived from Hong Kong and the amount of any balancing charge directed to be made under Part VI, and deducting therefrom a reserve for unexpired risks at the percentage adopted by that corporation in relation to its operations as a whole for such risks at the end of the period for which such profits are ascertained, and adding thereto a reserve similarly calculated for unexpired risks outstanding at the commencement of such period, and from the amount so arrived at deducting the actual losses less the amount recoverable in respect thereof under reinsurance, the agency expenses in Hong Kong and the allowances provided under Part VI to the extent to which the relevant assets are used in the production of such profits, and a fair proportion of the expenses of the head office of the corporation: (Amended 49 of 1956 s. 20; 7 of 1975 s. 22) Provided that where the Commissioner is satisfied that, by reason of the limited extent of such business transacted in Hong Kong by a non-resident insurance corporation it would be unreasonable to require such corporation to furnish the particulars necessary for the application of this section, he may permit the assessable profits of the corporation to be ascertained by reference to the proportion of the total profits and income of the corporation corresponding to the proportion which its premiums from insurance business in Hong Kong bear to its total premiums or on any other basis which appears to him to be equitable.

(2) For the purposes of this section "premiums from insurance business in Hong Kong" shall include- (a) all premiums in respect of contracts of insurance other than life insurance made in Hong Kong; and (b) all premiums on contracts of insurance other than life insurance the proposals for which were made to the corporation in Hong Kong. (Amended 49 of 1956 s. 20) (Added 36 of 1955 s. 33. Amended 7 of 1986 s. 12) 23AA. Mutual insurance corporations For the purposes of this Part, a mutual insurance corporation shall be deemed to carry on an insurance business the surplus from which shall be ascertained in the manner provided in sections 23 and 23A for ascertaining assessable profits and shall be deemed to be assessable profits chargeable to tax under section 14.

(Added 26 of 1969 s. 15) 23B. [1] Ascertainment of the assessable profits of a ship-owner carrying on business in Hong Kong (1) Where a person carries on a business as an owner of ships and- (a) the business is normally controlled or managed in Hong Kong; or (b) the person is a company incorporated in Hong Kong, that person shall be deemed to be carrying on that business in Hong Kong.

(2) Subject to subsection (6), where a person to whom subsection (1) does not apply carries on a business as an owner of ships, and any ship owned by that person calls at any location within the waters of Hong Kong, that person shall be deemed to be carrying on that business in Hong Kong.

(3) Subject to subsections (4) and (5), where a person is deemed to be carrying on a business as an owner of ships in Hong Kong under subsection (1) or (2), as the case may be, the assessable profits of that person from that business for a year of assessment shall be the sum bearing the same ratio to the aggregate of the relevant sums earned by or accrued to that person during the basis period for that year of assessment as that person's total shipping profits for the basis period bear to the aggregate of the total shipping income earned by or accrued to that person during that basis period for that year of assessment.

(4) Subject to subsection (5), where in the opinion of the assessor the provisions in subsection (3) for computing assessable profits cannot for any reason be satisfactorily applied in the case of a person to whom subsection (2) applies, the assessable profits of that person for any year of assessment may instead be computed on a fair percentage of the aggregate of the relevant sums earned by or accrued to that person during the basis period for that year of assessment.

(5) Notwithstanding section 70, where the assessable profits of any person have been computed for any year of assessment in accordance with subsection (4), the person shall, upon the submission to the assessor of accounts computed in accordance with the provisions of this Part relating to the ascertainment of assessable profits, be entitled to elect at any time within 2 years from the end of the year of assessment that his assessable profits for that year be recomputed in accordance with subsection (3). (6) Where the Commissioner is satisfied that the call at any location within the waters of Hong Kong of any ship owned by a person to whom subsection (2) applies is of a casual nature, and that further calls at any location within those waters by that or any other ship in the same ownership are improbable, he may in his discretion direct that that person shall be deemed not to be carrying on a business as an owner of ships in Hong Kong under subsection (2) by reason of the casual call of that ship and accordingly, in the event of his making such a direction, that person shall be so deemed not to be carrying on that business.

(7) For the purposes of this section, it is declared that where a ship is operated during the basis period for a year of assessment by a person deemed to be carrying on a business as an owner of ships in Hong Kong under subsection (1) or (2), as the case may be- (a) if the ship is a registered ship (in respect of which the definition of "exempt sums" applies) at any time during that basis period, only losses incurred by that person in respect of the operation of that ship while it is not such a registered ship shall be set off against the assessable profits of that person in accordance with section 19C; (b) sections 18F and 19E shall apply in respect of the operation of the ship (treated as machinery or plant for the purposes of Part VI) by that person, and- (i) subject to subsections (8) and (9), in the case of any initial allowance or annual allowance, as the case may be, that may be made to that person under Part VI, that allowance shall only be made in respect of that portion of the basis period during which the ship is not a registered ship (in respect of which the definition of "exempt sums" applies) to the extent that that ship is operated in that portion of that basis period for that year of assessment for the purpose of producing assessable profits; (ii) in the case of any balancing allowance or balancing charge, as the case may be, that may be made to that person under Part VI, that allowance or charge shall be limited to a sum which is in the same proportion as the aggregate of the initial and annual allowances made to that person in computing his assessable profits since the acquisition of the ship bears to the aggregate of the initial and annual allowances that would have been made had the ship been operated by that person at all times since its acquisition for the purpose of producing assessable profits.

(8) Where in the basis period for any year of assessment a registered ship (in respect of which the definition of "exempt sums" applies) ceases to be a registered ship, any allowances that may be made under Part VI in respect of the operation of that ship (treated as machinery or plant for the purposes of that Part) for that year of assessment and subsequent years, shall be computed on the reducing value of the ship after taking into account the amounts. of- (a) any initial allowance made under section 37 (1), 37A (1) or 39B (1); and (b) subject to subsection (9), any annual allowance that would have been made under section 37 (2), 37A (2) or 39B (2) had the ship, since its acquisition by a person deemed to be carrying on a business as an owner of ships in Hong Kong under subsection (1) or (2), as the case may be, been operated for the purpose of producing assessable profits.

(9) For the purposes of subsections (7) (b) (i) and (8) (b)- (a) in the case of subsection (7) (b) (i), the reference to Part VI (which Part contains sections 37 (2) and 37A (2) amongst others); and (b) in the case of subsection (8) (b), the reference to sections 37 (2) and 37A (2), shall, in both cases, be construed as if the words "at the end of the basis period" (in the first place where they appear in section 37 (2), and where they appear in section 37A (2) read "during the basis period".

(10) For the purposes of this section, any sums earned by or accrued to the owner of a ship under a charter-party that does not, or does not purport to, extend to the whole of that ship shall, to the extent that those sums are derived from, attributable to, or in respect of, any voyage or voyages of that ship commencing from any location within the waters of Hong Kong, be deemed to be derived from, attributable to, or in respect of, any relevant carriage shipped in Hong Kong.

(11) A copy of, or extract from, the register of ships in legible form issued and certified under the Merchant Shipping (Registration) Ordinance (Cap. 415) shall- (a) in relation to any year of assessment, be proof that a ship was a registered ship or was not a registered ship, or be proof that a ship had commenced to be a registered ship or had ceased to be a registered ship, as the case may be; and (b) in relation to the date of the provisional registration of that ship under that Ordinance, be proof that that registered ship was so registered from that date of provisional registration.

(12) In this section- "bill of lading" has the same meaning as in the Import and Export Ordinance (Cap. 60), but does not include a bill of lading which describes any port or other location within the waters of Hong Kong as the port of origin or the port of destination; "business as an owner of ships" means a business of chartering or operating ships, but does not include dealing in ships or agency business in connection with shipping; "charter hire" means any sums earned by or accrued to an owner of a ship under a charter-party in respect of the operation of the ship, but does not include any sums so earned or accrued where that charter-party does not, or does not purport to, extend to the whole of that ship; "exempt sums" means any sums derived from, attributable to, or in respect of- (a) any relevant carriage shipped aboard a registered ship at any location within the waters of Hong Kong and proceeding to sea from that or any other location within those waters; or (b) any towage operation undertaken by a registered ship proceeding to sea from any location within the waters of Hong Kong; "goods" includes livestock and mails; "goods in transit", in relation to the shipment of goods aboard a ship, means goods- (a) specified in a bill of lading; (b) brought to Hong Kong by sea solely for the purpose of the onward carriage of those goods; and (c) in respect of which any freight charges for that onward carriage are not paid or payable in Hong Kong; "operation", in relation to a ship, includes the use or possession of the ship, and "operated" shall be construed accordingly; "owner", in relation to a ship, includes a charter of the ship under a charter-party; "passengers" does not include re-embarking passengers; "re-embarking passengers", in relation to a voyage of a ship, means passengers whose passenger tickets in respect of the voyage do not specify Hong Kong as the place of departure or as the place of destination; "registered ship" means a ship registered under the Merchant Shipping (Registration) Ordinance (Cap. 415); "relevant carriage", in relation to a ship, means the carriage by sea of passengers or goods, or both passengers and goods, as the case may be, but does not include the carriage of goods in transit; "relevant limited partnership" means a limited partnership- (a) registered in accordance with the provisions of the Limited Partnerships Ordinance (Cap. 37) on or before 2 December 1990 and continuing to be so registered after that date; and (b) whose principal assets include any ship, or any interest therein, acquired by or on behalf of that partnership on or before that date; "relevant sums" means- (a) any sums derived from, attributable to, or in respect of- (i) any relevant carriage shipped in Hong Kong; (ii) any towage operation undertaken by a ship within the waters of Hong Kong, or any towage operation undertaken by that ship commencing from any location within those waters, as the case may be; (iii) any dredging operation undertaken by a ship within the waters of Hong Kong; (iv) any charter hire in respect of- (A) the operation of a ship navigating solely or mainly within the waters of Hong Kong; or (B) a charter-party where one of the parties thereto is a relevant limited partnership; (b) one half of any sums derived from, attributable to, or in respect of, any charter hire in respect of the operation of a ship navigating between any location within the waters of Hong Kong and any location within river trade waters, but does not include exempt sums; "river trade waters" means the waters contained within river trade limits other than the waters of Hong Kong contained within those limits; "sea", except in relation to relevant carriage, means the waters of the sea other than those contained within river trade limits; "ship" includes any dynamically supported craft within the meaning of the Shipping and Port Control Ordinance (Cap. 313); "shipped", in the case of passengers, means embarked; "shipped in Hong Kong", in relation to the shipment of relevant carriage, means shipped aboard a ship at any location within the waters of Hong Kong; "total shipping income", in relation to any basis period, means the worldwide income of a person from the person's business as an owner of ships, and indicated as such by that person's accounts for that period; "total shipping profits", in relation to any basis period, means the worldwide profits of a person from the person's business as an owner of ships, and indicated as such by that person's accounts for that period.

(Replaced 47 of 1992 s. 3) 23C. Ascertainment of the assessable profits of a resident aircraft-owner (1) Where a person carries on a business as an owner of aircraft and- (a) the business is normally controlled or managed in Hong Kong; or (b) the person is a company incorporated in Hong Kong, that person shall be deemed to be carrying on that business in Hong Kong.

(2) Where a person is deemed to be carrying on a business as an owner of aircraft in Hong Kong under this section the assessable profits from that business for any year of assessment shall be the sum bearing the same ratio to the aggregate of the relevant sums earned by or accrued to that person during the basis period for that year of assessment as that person's total aircraft profits for the basis period bear to the aggregate of the total aircraft income earned by or accrued to that person during that basis period for that year of assessment.

(3) For the purposes of this section, any sums earned by or accrued to the owner of an aircraft under a charter-party (whether by demise or not) that does not, or does not purport to, extend to the whole of that aircraft shall, to the extent that those sums are derived from, attributable to, or in respect of, any outward flight or flights of that aircraft commencing from any aerodrome or airport within Hong Kong, be deemed to be derived from, attributable to, or in respect of, any relevant carriage shipped in Hong Kong.

(4) For the purposes of this section, the following sums earned by or accrued to an owner of aircraft under a charter-party otherwise than by demise shall be deemed to be derived from, attributable to, or in respect of, any relevant carriage shipped in Hong Kong- (a) in the case of a charter-party which is a flight charter, any sums earned by or accrued to that owner under that charter-party and derived from, attributable to, or in respect of, any outward flight or flights of that aircraft commencing from any aerodrome or airport within Hong Kong; (b) in the case of a charter-party which is a time charter, the sum bearing the same ratio to the aggregate of the sums earned by or accrued to that owner under that charter-party as the total number of flying hours of that aircraft flown in respect of all outward flights of that aircraft commencing from any aerodrome or airport within Hong Kong to the final destinations of those flights bear to the aggregate of the total number of flying hours of that aircraft flown in respect of all flights of that aircraft under that charter-party.

(5) In this section- "aerodrome or airport" includes any helipad; "air waybill" has the same meaning as in the Import and Export Ordinance (Cap, 60), but does not include an air waybill which describes any aerodrome or airport in Hong Kong as the aerodrome or airport of departure or the aerodrome or airport of destination; "aircraft" includes a helicopter; "business as an owner of aircraft" means a business of chartering or operating aircraft, but does not include dealing in aircraft or agency business in connection with air transport; "charter hire" means any sums earned by or accrued to an owner of an aircraft under a charter-party by demise in respect of the operation of the aircraft, but does not include any sums so earned or accrued where that charter-party does not, or does not purport to, extend to the whole of that aircraft; "goods" includes livestock and mails; "goods in transit", in relation to the shipment of goods aboard an aircraft, means goods- (a) specified in an air waybill (issued by or on behalf of an owner of aircraft) or a post office delivery bill; (b) brought to Hong Kong by air solely for the purpose of the onward carriage of those goods; and (c) in respect of which any freight charges for that onward carriage are not paid or payable in Hong Kong; "operation", in relation to an aircraft, includes the use or possession of the aircraft; "owner", in relation to an aircraft, includes a charterer of the aircraft under a charter-party; "passengers" does not include passengers in transit; "passengers in transit", in relation to a flight of an aircraft, means passengers- (a) whose passenger tickets in respect of the flight do not specify Hong Kong as the place of departure or as the place of destination; or (b) who- (i) travel to Hong Kong in any aircraft owned by an owner of aircraft and leave Hong Kong in that or any other aircraft in the same ownership; and (ii) not more than 24 hours after travelling to and arriving at Hong Kong, leave Hong Kong for a destination other than the one from which they had travelled; "permanent establishment" means a branch, management or other place of business, but does not include an agency unless the agent has, and habitually exercises, a general authority to negotiate and conclude contracts on behalf of his principal; "post office delivery bill", in relation to the carriage of mails, means any document (whether referred to as an "AV7 bill" or otherwise) which does not describe Hong Kong, or the General Post Office of Hong Kong, as the office of origin or the office of destination in respect of those mails; "relevant carriage", in relation to an aircraft, means the carriage by air of passengers or goods, or both passengers and goods, as the case may be, but does not include the carriage of goods in transit; "relevant charter hire" means charter hire other than charter hire attributable to a permanent establishment maintained outside Hong Kong by a person deemed to be carrying on a business as an owner of aircraft in Hong Kong under this section, but does not include- (a) charter hire in respect of the operation of an aircraft flying between aerodromes or airports within Hong Kong; or (b) charter hire in respect of the operation of an aircraft flying between any aerodrome or airport within Hong Kong and any aerodrome or airport within Macao; "relevant sums" means- (a) any sums derived from, attributable to, or in respect of- (i) any relevant carriage shipped in Hong Kong; (ii) any relevant charter hire; (iii) any charter hire in respect of the operation of an aircraft flying between aerodromes or airports within Hong Kong; (iii) one half of any sums derived from, attributable to, or in respect of, any charter hire in respect of the operation of an aircraft flying between any aerodrome or airport within Hong Kong and any aerodrome or airport within Macao; "shipped", in the case of passengers, means embarked; "shipped in Hong Kong", in relation to the shipment of relevant carriage, means shipped aboard an aircraft at any aerodrome or airport within Hong Kong; "total aircraft income", in relation to any basis period, means the worldwide income of a person from the person's business as an owner of aircraft, and indicated as such by that person's accounts for that period; "total aircraft profits", in relation to any basis period, means the worldwide profits of a person from the person's business as an owner of aircraft, and indicated as such by that person's accounts for that period; (Replaced 47 of 1992 s. 3) 23D. Ascertainment of the assessable profits of a non-resident aircraft- owner (1) Subject to subsection (5), where a person to whom section 23C does not apply carries on a business as an owner of aircraft, and any aircraft owned by that person lands at any aerodrome or airport within Hong Kong, that person shall be deemed to be carrying on that business in Hong Kong.

(2) Subject to subsections (3) and (4), where a person is deemed to be carrying on a business as an owner of aircraft under this section the assessable profits of that person from that business for any year of assessment shall be the sum bearing the same ratio to the aggregate of the relevant sums earned by or accrued to that person during the basis period for that year of assessment as that person's total aircraft profits for the basis period bear to the aggregate of the total aircraft income earned by or accrued to that person during that basis period for that year of assessment.

(3) Subject to subsection (4), where in the opinion of the assessor the provisions in subsection (2) for computing assessable profits cannot for any reason be satisfactorily applied in the case of a person to whom this section applies, the assessable profits of that person for any year of assessment may instead be computed on a fair percentage of the aggregate of the relevant sums earned by or accrued to that person during the basis period for that year of assessment.

(4) Notwithstanding section 70, where the assessable profits of any person have been computed for any year of assessment in accordance with subsection (3), the person shall, upon the submission to the assessor of accounts computed in accordance with the provisions of this Part relating to the ascertainment of assessable profits, be entitled to elect at any time within 2 years from the end of the year of assessment that his assessable profits for that year be re-computed in accordance with subsection (2).

(5) Where the Commissioner is satisfied that the landing at any aerodrome or airport within Hong Kong of any aircraft owned by a person to whom this section applies is of a casual nature, and that further landings at any aerodrome or airport within Hong Kong by that or any other aircraft in the same ownership are improbable, he may in his discretion direct that that person shall be deemed not to be carrying on a business as an owner of aircraft in Hong Kong under this section by reason of the casual landing of that aircraft and accordingly, in the event of his making such a direction, that person shall be so deemed not to be carrying on that business.

(6) For the purposes of this section, any sums earned by or accrued to the owner of an aircraft under a charter-party(whether by demise or not) that does not, or does not purport to, extend to the whole of that aircraft shall, to the extent that those sums are derived from, attributable to, or in respect of, any outward flight or flights of that aircraft commencing from any aerodrome or airport within Hong Kong, be deemed to be derived from, attributable to, or in respect of, any relevant carriage shipped in Hong Kong.

(7) For the purposes of this section, the following sums earned by or accrued to an owner of an aircraft under a charter-party otherwise than by demise shall be deemed to be derived from, attributable to, or in respect of, any relevant carriage shipped in Hong Kong- (a) in the case of a charter-party which is a flight charter, any sums earned by or accrued to that owner under that charter-party and derived from, attributable to, or in respect of, any outward flight or flights of that aircraft commencing from any aerodrome or airport within Hong Kong; (b) in the case of a charter-party which is a time charter, the sum bearing the same ratio to the aggregate of the sums earned by or accrued to that owner under that charter-party as the total number of flying hours of that aircraft flown in respect of all outward flights of that aircraft commencing from any aerodrome or airport within Hong Kong to the final destinations of those flights bear to the aggregate of the total number of flying hours of that aircraft flown in respect of all flights of that aircraft under that charter-party.

(8) In this section- "aerodrome or airport" includes any helipad; "air waybill" has the same meaning as in the Import and Export Ordinance (Cap. 60), but does not include an air waybill which describes any aerodrome or airport in Hong Kong as the aerodrome or airport of departure or the aerodrome or airport of destination; "aircraft" includes a helicopter; "business as an owner of aircraft" means a business of chartering or operating aircraft, but does not include dealing in aircraft or agency business in connection with air transport; "charter hire" means any sums earned by or accrued to an owner of an aircraft under a charter-party by demise in respect of the operation of the aircraft, but does not include any sums so earned or accrued where that charter-party does not, or does not purport to, extend to the whole of that aircraft; "goods" includes livestock and mails; "goods in transit", in relation to the shipment of goods aboard an aircraft, means goods- (a) specified in an air waybill (issued by or on behalf of an owner of aircraft) or a post office delivery bill; (b) brought to Hong Kong by air solely for the purpose of the onward carriage of those goods; and (c) in respect of which any freight charges for that onward carriage are not paid or payable in Hong Kong; "operation", in relation to an aircraft, includes the use or possession of the aircraft; "owner", in relation to an aircraft, includes a charterer of the aircraft under a charter-party; "passengers" does not include passengers in transit; "passengers in transit", in relation to a flight of an aircraft, means passengers- (a) whose passenger tickets in respect of the flight do not specify Hong Kong as the place of departure or as the place of destination; or (b) who- (i) travel to Hong Kong in any aircraft owned by an owner of aircraft and leave Hong Kong in that or any other aircraft in the same ownership; and (ii) not more than 24 hours after travelling to and arriving at Hong Kong, leave Hong Kong for a destination other than the one from which they had travelled; "permanent establishment" means a branch, management or other place of business, but does not include an agency unless the agent has, and habitually exercises, a general authority to negotiate and conclude contracts on behalf of his principal; "post office delivery bill", in relation to the carriage of mails, means any document (whether referred to as an "AV7 bill" or otherwise) which does not describe Hong Kong, or the General Post Office of Hong Kong, as the office of origin or the office of destination in respect of those mails; "relevant carriage", in relation to an aircraft, means the carriage by air of passengers or goods, or both passengers and goods, as the case may be, but does not include the carriage of goods in transit; "relevant charter hire" means charter hire attributable to a permanent establishment maintained in Hong Kong by a person deemed to be carrying on a business as an owner of aircraft in Hong Kong under this section, but does not include- (a) charter hire in respect of the operation of an aircraft flying between aerodromes or airports within Hong Kong; or (b) charter hire in respect of the operation of an aircraft flying between any aerodrome or airport within Hong Kong and any aerodrome or airport within Macao; "relevant sums" means- (a) any sums derived from, attributable to, or in respect of- (i) any relevant carriage shipped in Hong Kong; (ii) any relevant charter hire; (iii) any charter hire in respect of the operation of an aircraft flying between aerodromes or airports within Hong Kong; (b) one half of any sums derived from, attributable to, or in respect of, any charter hire in respect of the operation of an aircraft flying between any aerodrome or airport within Hong Kong and any aerodrome or airport within Macao; "shipped", in the case of passengers, means embarked; "shipped in Hong Kong", in relation to the shipment of relevant carriage, means shipped aboard an aircraft at any aerodrome or airport within Hong Kong; "total aircraft income", in relation to any basis period, means the worldwide income of a person from the person's business as an owner of aircraft, and indicated as such by that person's accounts for that period; "total aircraft profits", in relation to any basis period, means the worldwide profits of a person from the person's business as an owner of aircraft, and indicated as such by that person's accounts for that period.

(Added 47 of 1992 s. 3) 23E. Alternative computation of "total shipping profits" and "total aircraft profits" Where total shipping profits within the meaning of section 23B (12) or total aircraft profits within the meaning of section 23C (5) or 23D (8), as the case may be, have been computed on a basis which differs materially from that provided for in this Part for the ascertainment of assessable profits in respect of which a person is chargeable to tax, those profits may be adjusted so as to correspond as nearly as may be to the sum that would have been arrived at had they been computed in accordance with the provisions of this Part relating to the ascertainment of assessable profits in respect of which a person is chargeable to tax.

(Added 47 of 1992 s. 3) 24. Clubs, trade associations, etc.

(1) Where a person carries on a club or similar institution which receives from its members not less than half of its gross receipts on revenue account (including entrance fees and subscriptions), such person shall be deemed not to carry on a business; but where less than half of its gross receipts are received from members, the whole of the income from transactions both with members and others (including entrance fees and subscriptions) shall be deemed to be receipts from a business, and such person shall be chargeable in respect of the profits therefrom. (Amended 36 of 1955 s. 23; 49 of 1956 s. 22) (2) Where a person carries on a trade, professional or business association in such circumstances that more than half its receipts by way of subscriptions are from persons who claim or would be entitled to claim that such sums were allowable deductions for the purposes of section 16, such person shall be deemed to carry on a business, and the whole of the income of such association from transactions both with members and others (including entrance fees and subscriptions) shall be deemed to be receipts from business, and such person shall be chargeable in respect of the profits therefrom. (Amended 36 of 1955 s. 34; 2 of 1971 s. 17; 40 of 1972 s. 3) (3) In this section, "members" means those persons entitled to vote at a general meeting of the club, or similar institution, or trade, professional or business association. (Replaced 36 of 1955 s. 34. Amended 40 of 1972 s. 3) 25. Deduction of property tax from profits tax Where property tax is payable for any year of assessment under Part II in respect of any land or buildings owned by a person carrying on a trade, profession or business, any profits tax payable by such person in respect of that year of assessment shall be reduced by a sum not exceeding the amount of such property tax paid by him: Provided that- (a) no reduction shall be allowed unless either the profits derived from such property are part of the profits of the trade, profession or business carried on by such person or the property is occupied or used by him for the purposes of producing profits in respect of which he is chargeable to tax under this Part; (Replaced 11 of 1961 s. 5. Amended 35 of 1965 s. 14) (b) if the amount of property tax paid for a year of assessment exceeds the profits tax payable, the amount so paid in excess shall be refunded in accordance with the provisions of section 79; (Replaced 11 of 1961 s. 5) (c) where property tax for the year of assessment commencing on 1 April 1960, or earlier years, exceeded the profits tax payable for such years the amount of the excess shall be set off against the profits tax payable for the year of assessment commencing on 1 April 1961, after deduction of the property tax paid for that year and any balance left over shall be carried forward and set off in like manner against the profits tax payable for the next succeeding years. (Replaced 11 of 1961 s. 5) (Replaced 3 of 1949 s. 9) 26. Exclusion of certain dividends and profits from the assessable profits of other persons For the purposes of this Part- (a) a dividend from a corporation which is chargeable to tax under this Part shall not be included in the profits in respect of which any other person is chargeable to tax under this Part; and (b) save as otherwise provided no part of the profits or losses of a trade, profession or business carried on by a person who is chargeable to tax under this Part shall be included in ascertaining the profits in respect of which any other person is chargeable to tax under this Part.

(Added 2 of 1971 s. 18) (Replaced 16 of 1951 s. 5. Amended 28 of 1964 s. 10; 2 of 1971 s. 18; 7 of 1975 s. 25; 62 of 1975 s. 2) 26A. Exclusion of certain profits from tax (1) For the purposes of this Part- (a) interest paid or payable on a Tax Reserve Certificate issued by the Commissioner; (b) interest paid or payable on a bond issued under the Loans Ordinance (Cap. 61) or the Loans (Government Bonds) Ordinance (Cap. 64); (Amended 48 of 1991 s. 2) (c) any profit on the sale or other disposal or on the redemption on maturity or presentment of such a bond; (Amended 48 of 1991 s. 2) (d) interest paid or payable on an Exchange Fund debt instrument; (Added 9 of 1990 s. 2. Amended 17 of 1992 s. 2) (e) any profit on the sale or other disposal or on the redemption on maturity or presentment of such an Exchange Fund debt instrument; (Added 9 of 1990 s. 2) (f) interest paid or payable on a Hong Kong dollar denominated multilateral agency debt instrument; and (Added 17 of 1992 s. 2) (g) any profit on the sale or other disposal or on the redemption or maturity or presentment of such a Hong Kong dollar denominated multilateral agency debt instrument; (Added 17 of 1992 s. 2) shall not be included in the profits of any corporation or other person chargeable to tax under this Part. (Amended 9 of 1990 s. 2) (1A) For the purposes of this Part, sums received by or accrued to an authorized mutual fund corporation or trustees of an authorized unit trust by way of- (a) gains or profits arising from the sale or other disposal or on the redemption on maturity or presentment of securities; (b) gains or profits under a foreign exchange contract or futures contract; and (c) interest, shall not be included in the profits of the corporation or trustees (as the case may be). (Replaced 19 of 1991 s. 3) (2) In this section- "authorized" means authorized under section 15 of the Securities Ordinance (Cap. 333); (Added 19 of 1991 s. 3) "computer" means any device for storing, processing or retrieving information; "Exchange Fund" means the fund of that name established under section 3 (1) of the Exchange Fund Ordinance (Cap. 66); "Exchange Fund debt instrument" means any instrument (whether described as an "Exchange Fund Bill" or otherwise) issued under the Exchange Fund Ordinance (Cap. 66) evidencing the deposit of a sum of money in Hong Kong currency with the Monetary Authority for the account of the Exchange Fund, being an instrument which recognizes an obligation to pay a stated amount, with or without interest, and which is transferable in a manner specified by that Authority; (Amended 82 of 1992 s. 9) "foreign exchange" means the exchange of different currencies; (Added 19 of 1991 s. 3) "futures contract" has the same meaning as in section 2 (1) of the Commodities Trading Ordinance (Cap. 250); (Added 19 of 1991 s. 3) "instrument" includes- (a) every written document; (b) any information recorded in the form of an entry in a book of account; and (b) any information which is recorded (whether by means of a computer or otherwise) in a non-legible form but is capable of being reproduced in a legible form; "multilateral agency debt instrument" means an instrument specified in Part I of Schedule 6 issued by a body specified in Part II of that Schedule; (Added 17 of 1992 s. 2) "mutual fund corporation" has the same meaning as in section 2 (1) of the Securities Ordinance (Cap. 333); (Added 19 of 1991 s. 3) "securities" includes- (a) any negotiable receipt or other negotiable certificate or instrument evidencing the deposit of a sum of money, or any rights or interests arising under any such receipt, certificate or instrument; and (b) any bill of exchange within the meaning of section 3 of the Bills of Exchange Ordinance (Cap. 19), but otherwise has the same meaning as in section 2 (1) of the Securities Ordinance (Cap. 333); (Replaced 19 of 1991 s. 3) "unit trust" has the same meaning as in section 2 (1) of the Securities Ordinance (Cap. 333). (Added 9 of 1990 s. 2) (3) The Legislative Council may by resolution amend Schedule 6. (Added 17 of 1992 s. 2) (Replaced 62 of 1975 s. 3) PART V ALLOWANCES 27. Allowances, general provisions (1) This Part prescribes the allowances which shall be granted to persons chargeable to tax under Parts III and VII and the circumstances in which such allowances are grantable.

(2) Every person who claims an allowance under this Part shall make his claim in the specified form and an allowance shall be granted only if the claim contains such particulars and is supported by such proof as the Commissioner may require.

(3) In this Part- "adopted" means adopted in any manner recognized by the laws of Hong Kong; "allowance" means an allowance granted under this Part; "child" means any child of a person chargeable to tax or of his or her spouse or former spouse whether or not born in wedlock and includes the adopted or step child of either or both of them; "person" means a person chargeable to tax under Part III or, as the case may be, Part VII; "prescribed amount" and "prescribed percentage" mean the amount and percentage specified in the second column of the Fourth Schedule in relation to the provisions of this Part specified in the first column of that Schedule.

28. Basic allowance (1) The following allowance ("basic allowance") shall be granted in any year of assessment- (a) an allowance of the prescribed amount; (b) an additional allowance of the prescribed amount, but this allowance shall be reduced by the prescribed percentage of the sum, if any, by which- (i) in the case of a person who is chargeable to salaries tax under Part III, the net assessable income of that person, as reduced under section 12BA by approved charitable donations, exceeds the prescribed amount; and (ii) in the case of a person who has elected to be assessed under Part VII, the total income of that person, as reduced under section 42 (2) and (5), exceeds the prescribed amount referred to in subparagraph (i).

(2) No person may be granted- (a) both a basic allowance and a married person's allowance; or (b) a basic allowance where his or her spouse has claimed a married person's allowance.

29. Married person's allowance (1) An allowance ("married person's allowance") shall be granted under this section in any year of assessment if a person is, at any time during that year, married and- (a) the spouse of that person did not have assessable income in the year of assessment; or (b) that person and his or her spouse have made, in relation to the year of assessment, an election under section 10 (2); or (c) that person has elected to be assessed under Part VII.

(2) Where an election has been made under section 10 (2) a married person's allowance shall be granted to the person chargeable to salaries tax under section 10 (3).

(3) A married person's allowance grantable under this section is- (a) an allowance of the prescribed amount; (b) an additional allowance of the prescribed amount, but this allowance shall be reduced by the prescribed percentage of the amount, if any, by which- (i) in the case of a person who is chargeable to salaries tax under section 10 (3), the aggregate of the net assessable incomes of that person and of his or her spouse as reduced by approved charitable donations provided for under section 12BA, exceeds the prescribed amount; (ii) in the case of a person assessable to salaries tax who is entitled to married person's allowance because he or she has such a wife or husband as is described in subsection (1) (a), the net assessable income as reduced by approved charitable donations provided for under section 12BA, exceeds the prescribed amount; and (iii) in the case of a person who has elected personal assessment under Part VII, the total income (as reduced under section 42 (2) and (5)) of that person and his or her spouse exceeds the prescribed amount.

(4) Where husband and wife are living apart a married person's allowance shall only be granted where the spouse claiming the allowance is maintaining or supporting the other.

(5) Where a married person's allowance is granted in respect of a husband and wife living apart, the husband and wife shall be treated as not living apart for the purposes of Part VII.

(6) Any claim to an allowance to which subsection (4) applies may be revoked by the claimant within the year of assessment in respect of which it was made or within 6 years after the expiration of that year.

30. Dependent parent allowance (1) An allowance ("dependent parent allowance") shall be granted under this section in any year of assessment if the person or his or her spouse, not being a spouse living apart from that person, maintains a parent or a parent of his or her spouse in the year of assessment and that parent at any time in that year was- (a) ordinarily resident in Hong Kong; and (b) aged 60 or more or, being under the age of 60, was eligible to claim an allowance under the Government's Disability Allowance Scheme.

(2) A dependent parent allowance may be granted in respect of each such parent who is so maintained.

(3) A dependent parent allowance grantable under this section is- (a) an allowance of the prescribed amount; (b) an additional allowance of the prescribed amount if a parent in respect of whom the person is eligible to claim an allowance under paragraph (a) for the year of assessment was residing, otherwise than for full valuable consideration, with the person continuously throughout the year of assessment.

(4) For the purposes of this section- (a) a parent shall only be treated as being maintained by a person or his or her spouse if- (i) the parent resides, otherwise than for full valuable consideration, with that person and his or her spouse for a continuous period of not less than 6 months in the year of assessment; or (ii) the person or his or her spouse contributes not less than the prescribed amount in money towards the maintenance of that parent in the year of assessment; (6) "parent of the person or his or her spouse" means- (i) a parent of whose marriage, the person or his or her spouse is the child; (ii) a parent by whom the person or his or her spouse was adopted; (iii) a step parent of the person or of his or her spouse; (iv) the natural father or mother of the person or his or her spouse; or (v) in the case of a deceased spouse a person who would have been the parent of the person's spouse by reason of subparagraphs (i) to (iv) if the spouse had not died.

31. Child allowance (1) An allowance ("child allowance") shall be granted under this section in the prescribed amount in any year of assessment if the person had living and was maintaining at any time during the year of assessment an unmarried child who was- (a) under the age of 18; (b) of or over the age of 18 years but under the age of 25 years and was receiving full time education at a university, college, school or other similar educational establishment; or (c) of or over the age of 18 years and was, by reason of physical or mental disability, incapacitated for work.

(2) Subject to subsection (3), where more than one person is entitled to claim a child allowance under this section in respect of the same child for the same year of assessment, the allowance due shall be apportioned on such basis as the Commissioner may decide having regard to the contributions made by each individual to the maintenance and education of the child during the year of assessment.

(3) In the case of a husband and wife, not being a husband and wife living apart, chargeable to salaries tax under Part III- (a) all child allowances grantable under this section shall be claimed by one spouse; and (b) the claim shall be made by such spouse as the spouses may nominate.

(4) A nomination under subsection (3) (b) made in relation to any year of assessment shall not be revoked save with the consent of the Commissioner whose decision in the matter shall be final and not subject to objection or appeal.

(5) The total of the child allowances granted to a person in respect of his or her children shall not exceed the prescribed amount.

32. Single parent allowance (1) An allowance ("single parent allowance") of the prescribed amount shall be granted if at any time during the year of assessment the person had the sole or predominant care of a child in respect of whom the person was entitled during the year of assessment to be granted a child allowance.

(2) A person shall not be entitled to claim single parent allowance- (a) if at any time during the year of assessment the person was married and not living apart from his or her spouse; (b) by reason only that the person made contributions to the maintenance and education of the child during the year of assessment; or (c) in respect of any 2nd or subsequent child.

(3) Where 2 or more persons are entitled to claim single parent allowance in respect of the same child for the same year of assessment, the allowance due shall be apportioned on such basis as the Commissioner may decide- (a) having regard to the respective periods for which each person had the sole or predominant care of the child during the year of assessment; or (b) if, in the opinion of the Commissioner, those periods are uncertain, on such basis as the Commissioner may decide as being just.

33. Provisions supplementary to sections 30 and 31 (1) Subject to section 31 (2), a dependent parent allowance or a child allowance shall not be given to more than one person in any year of assessment in respect of the same parent or child.

(2) Subject to section 31 (2) and (3), where the Commissioner has reason to believe that 2 or more persons are eligible to claim such an allowance in respect of the same parent or child for the same year of assessment, the Commissioner shall not consider any claim until he is satisfied that the claimants have agreed which of them shall be entitled to claim in that year.

(3) Where a dependent parent allowance or a child allowance has been granted- (a) otherwise than under section 31 (2) to 2 or more persons in respect of the same parent or child; or (b) to both a husband and wife, contrary to section 31 (3); or (c) to a person and, within 6 months or such allowance being granted, another person appears to the Commissioner to be eligible to be granted that allowance in respect of the same parent or child for the same year of assessment, the Commissioner shall invite the persons to whom the allowance has been granted and any other individual who appears to the Commissioner to be eligible to be granted the allowance to agree which of them is to have the allowance (being an agreement consistent with the provisions of this Part) and the Commissioner may in consequence of such agreement, or if the individuals do not so agree within a reasonable time, within the period specified in section 60, raise additional assessments under that section.

(4) The Commissioner shall exercise his powers under this section in such manner as may appear to him to be just having regard to such in formation only as may be in his possession at the time when he exercises those powers.

(Part V added 43 of 1989 s. 10) PART VI DEPRECIATION, ETC.

34. Initial and annual allowances, industrial buildings and structures (1) Where a person incurs capital expenditure on the construction of a building or structure which is to be an industrial building or structure occupied for the purposes of a trade there shall be made to the person who incurred the expenditure for the year of assessment in the basis period for which the expenditure was incurred an allowance to be known as an "initial allowance" equal to one-fifth thereof: (Amended 30 of 1950 Schedule; 35 of 1965 s. 17) Provided that- (a) no initial allowance shall be made for the 8 successive years of assessment commencing on 1 April in each of the years 1957 to 1964; (b) where any initial allowance has been made in relation to capital expenditure on a building or structure under this subsection before such building or structure comes to be used and when it first comes to be used it is not an industrial building or structure, such allowance shall be disallowed and such additional assessments as may be necessary consequent thereon shall be made. (Replaced 35 of 1965 s. 17) (2) (a) Where any person is, at the end of the basis period for any year of assessment, entitled to an interest in a building or structure which is an industrial building or structure and where that interest is the relevant interest in relation to the capital expenditure incurred on the construction of that building or structure an allowance for depreciation by wear and tear, to be known as an "annual allowance", equal to one- twenty-fifth of that expenditure shall be made to him for that year of assessment. (Amended 36 of 1955 s. 41; 35 of 1965 s. 17) (b) Where the interest in a building or structure, which is the relevant interest in relation to any expenditure, is sold while the building or structure is an industrial building or structure the annual allowance, in the years of assessment the basis periods for which end after the time of that sale shall be computed by reference to the residue of expenditure immediately after the sale and shall be the fraction of the said residue the numerator of which is 2, where the building or structure was first used before the commencement of the basis period for the year of assessment commencing on 1 April 1965, and one, where the building or structure was first used on or after the commencement of such basis period, and the denominator of which is the number of years of assessment comprised in the period which- (i) begins with the first year of assessment for which the buyer is entitled to an annual allowance or would be so entitled if the building or structure had at all material times continued to be an industrial building or structure; and (ii) ends with the year of assessment which, where the building or structure was first used before the commencement of the basis period for the year of assessment commencing on 1 April 1965, is the 50th year after the year in which the building or structure was first used, and where the building or structure was first used on or after such basis period, is the 25th year after the year of assessment in which the building or structure was first used, and so on for any subsequent sales. (Replaced 35 of 1965 s. 17) (c) Notwithstanding anything in the preceding provisions of this section, in no case shall the amount of an annual allowance for any year of assessment in respect of any expenditure exceed such as, apart from the writing off falling to be made by reason of the making of that allowance, would be the residue of that expenditure at the end of his basis period for that year of assessment.

35. Balancing allowances and charges, industrial buildings and structures (1) Where any capital expenditure has been incurred on the construction of a building or structure and any of the following events occurs while the building or structure is an industrial building or structure, that is to say- (Amended 30 of 1950 Schedule) (a) the relevant interest in the building or structure is sold; or (b) that interest, being a leasehold interest, comes to an end otherwise than on the person entitled thereto acquiring the interest which is reversionary thereon; or (c) the building or structure is demolished or destroyed or, without being demolished or destroyed, ceases altogether to be used, an allowance or charge, to be known as a "balancing allowance" or a "balancing charge" shall, in the circumstances mentioned in this section, be made to or, as the case may be, on the person entitled to the relevant interest immediately before that event occurs for the year of assessment in his basis period for which that event occurs: Provided that no balancing allowance shall be made to any person where the building or structure is demolished for purposes unconnected with or not in the ordinary course of conduct of the trade or business for the purposes of which the building or structure was used in circumstances qualifying for annual allowances under section 34. (Replaced 35 of 1965 s.

18) (2) Where there are no sale, insurance, salvage or compensation moneys, or where the residue of the expenditure immediately before the event exceeds those moneys, a balancing allowance shall be made and the amount thereof shall be the amount of the said residue or, as the case may be, of the excess thereof over the said moneys.

(3) If the sale, insurance, salvage or compensation moneys exceed the residue, if any, of the expenditure immediately before the event, a balancing charge shall be made and the amount on which it is made shall be an amount equal to the excess or, where the residue is nil, to the said moneys.

(4) Notwithstanding anything in subsection (3), in no case shall the amount on which a balancing charge is made on a person exceed the aggregate of the following amounts, that is to say- (a) the amount of the initial allowance, if any, made to him in respect of the expenditure in question; (b) the amount of the annual allowances, if any, made to him in respect of the expenditure in question.

35A. Special provisions on termination of leasehold interest Where, on the termination of a leasehold interest- (a) a lessee of any building or structure remains in possession thereof with the consent of the lessor without a new lease being granted to him, the leasehold interest shall be deemed for the purposes of this Part to continue so long as he so remains in possession; (b) a new lease is granted to the lessee either by way of regrant or in pursuance of an option available to him under the terms of the first lease, this Part shall have effect as if the second lease were a continuation of the first lease.
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