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Hong Kong Tax — depreciation review

Where a company has incurred capital expenditure on the construction of a building, it is entitled to claim depreciation allowances on the capital expenditure incurred.  There is a significant difference between the rate of depreciation allowances applicable to the building itself and that applicable to plant and machinery therein.  A depreciation review is a process used to analyse the capital expenditure incurred so as to maximise the allowances and provide robust documentation to support the claim. 
For example, a Hong Kong company has incurred HK$100 million on the construction of a commercial building.  If the entire construction cost were classified as cost of the building, the annual depreciation allowance would be HK$4 million.  Depending on the type of building, depreciation review may be able to identify a significant portion of the construction cost as relating to the provision of plant and machinery.  The depreciation allowances in the first year (assuming a 20% allocation to plant and machinery is possible) would increase to HK$17.6 million, and this means that there would be a tax deferral of approximately HK$2.8 million in the first year. 
A depreciation review can therefore give rise to significant tax deferral and cash flow advantages.  It is applicable to a wide range of infrastructure, property development, hotel and major renovation projects.  We have well-developed methodology, research materials and a pro-forma technical report which ensures the process is cost-effective and adds value.

Contact us

Charles Lee

Charles Lee

South China (incl. Hong Kong SAR) Tax Leader, PwC China

Tel: +[852] 2289 8899

Jenny Tsao

Jenny Tsao

Consumer Markets Tax Leader, PwC Hong Kong

Tel: +[852] 2289 3617

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