Can I Claim Professional and Legal Fees as a Business Expense in Hong Kong?
Yes for recurring revenue-purpose fees. Audit fees are always deductible. Legal fees for capital transactions (acquisition of assets, loan agreements for capital purchase) are capital and not deductible.
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What Inland Revenue Department (IRD) says
Section 16 allows deduction of professional fees incurred wholly and exclusively in the production of assessable profits. Section 17(1)(c) disallows capital expenditure. Audit fees, accounting fees, and professional advice on trading/operational matters are revenue expenses. Legal fees for capital transactions, incorporation, or share restructuring are capital and disallowed. Every Hong Kong limited company must have its financial statements audited by a Hong Kong CPA, regardless of size, and the audited accounts accompany the Profits Tax Return. There is no small company audit exemption. The company may use the SME Financial Reporting Framework for simplified standards, but it still needs the audit. The company secretary fee is also a deductible running cost.
When you can claim
- Annual audit fees (mandatory for all HK private limited companies)
- Accounting and bookkeeping fees for preparation of management accounts
- Tax agent/advisor fees for preparation and filing of Profits Tax returns
- Legal fees for contract review, employment disputes, and debt collection
- Consulting fees for business development or operational improvements
- Company secretary fees and registered office fees paid each year
When you cannot claim
- Legal fees for acquiring or disposing of a capital asset (building, business, intellectual property)
- Incorporation fees and legal costs for initial company setup (capital in nature)
- Fees for restructuring share capital or undertaking corporate reorganisations
- Penalties and fines paid to regulatory authorities
- Fines and surcharges charged by the IRD or the Companies Registry
Good to know
Pro tip: If a legal fee covers both capital and revenue matters (e.g., a mixed lease negotiation and assignment), apportion the fee. Keep invoices describing the specific work to support the deductibility claim in the event of an IRD enquiry.
Important: The Companies Registry annual return (form NAR1) must be filed within 42 days of the anniversary of incorporation. The electronic fee is HKD 105 (HKD 340 on paper), and late filing penalties start at HKD 870. These government fees are deductible revenue expenses. Business records must be kept for at least 7 years.
Related expenses
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