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Q:
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How is an ‘entity’ defined?
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A:
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An entity means:
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1.
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A natural person;
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2.
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A body of persons; or
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3.
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A legal arrangement, including a corporation, a partnership and a trust
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Q:
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What is the meaning of a connected entity?
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A:
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An entity is a connected entity of another entity if:
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1.
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one of them has control over the other; or
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2.
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both of them are under the control of the same entity; or
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3.
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both of them are sole proprietorship business carried on by the same person.
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Q:
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If I and my spouse own 50% shareholding of corporation A and corporation B separately. Are corporation A and corporation B defined as connected entities?
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A:
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No, as neither you nor your spouse has control over corporation A and corporation B. They are not connected entities. Both entities qualify for the two-tiered profits tax rates.
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Q:
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What if I wholly own a sole-proprietorship A and my spouse wholly owns corporation B. Are they connected entities?
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A:
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They are not connected entities even sole-proprietorship A is controlled by you and corporation B is controlled by your spouse. Both entities qualify for the two-tiered profits tax rates.
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Q:
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What if a taxpaying entity incorrectly declares in its tax return that it has no connected entity or that no other connected entity has made an election for the two-tiered profits tax rates?
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A:
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Heavy penalties may be imposed for making an incorrect return without a reasonable excuse. Additional assessments will be raised in accordance with the provisions of the Inland Revenue Ordinance on the taxpaying entity on the basis that the two-tiered profits tax rates do not apply.
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FAQ
