Do not hesitate to make last-minute instalment application
From December 2019 onwards, due to economic recession, the Hong Kong Government has proposed various relief measures for taxpayers in financial difficulties. Tax payment by instalments are definitely one of the appealing measures to both SME and MNC which have cashflow problems during COVID-19.
The IRD allows taxpayers (including individuals, sole proprietorships, partnerships and corporations) in financial difficulties to apply for surcharge (interest) waiver for instalment settlement of Profits Tax, Salaries Tax and Personal Assessment (Property Tax are specifically excluded) for assessments for the Years of Assessment 2018/19, 2019/20 and 2020/21 issued on or before May 2022.
Under normal circumstances, for successful cases, the IRD will grant instalment plans for a duration of 6 months or less (longer duration of no more than 12 months under special circumstances) to individuals and a duration of 12 months for corporations. Taxpayers have to strictly follow the payment schedule of approved instalment plan in order to successfully obtain “zero-interest” status throughout the period.
While the IRD did not specifically mention its criteria in granting surcharge waiver application, the IRD did not seem to take a stringent approach based on our experience. As such, it is worthwhile for taxpayers which are cash strapped to consider making an application.
Taxpayers have to make the application in writing together with detailed instalment proposal and supporting documents. Typical supporting documents include latest 3-month bank statements, while other documents which could demonstrate your financial difficulties would be useful to the application (e.g., Cash flow forecast, future debt repayment details) as well.
POINTS TO NOTE
Based on our experience, many taxpayers face a dilemma in instalment applications. They probably would only be certain of their cash position around a week before the tax payment deadline, but for late applications the IRD is unlikely to make a decision before the deadline. Thus they considered that they have to settle the full amount anyway in order to avoid any penalty or surcharge.However, your concern has been resolved by the following latest prevailing practice of the IRD:-
- The IRD pledges to respond (i.e., Approve, Revise or Reject) the instalment proposals within 21 working days from the date of applications. It is suggested the taxpayers (or its tax representatives) to make informal phone calls to negotiate the proposals and provide supplementary documents to fight for the best deals;
- While pending the result from the IRD, taxpayers only had to settle the tax payment in accordance with its instalment proposal first; and
- In the case of rejection, taxpayers are only required to settle the full amount of tax liabilities within 14 days from the issue dates of the rejection letters. In other words, taxpayers are not in a hurry to settle the tax before the result announcements and have some time to look for alternative financing options.
Last but not least, tax instalment plans generally come with Provisional Profits Tax holdover applications. The chance of success of holdover application is generally very high as long as it is submitted i) before the application due date and ii) with proper supporting documents (e.g., certificated copies of financial statements). As such, taxpayers may also take into consideration the effect of holdover applications in your instalment proposals.
