Hong Kong Construction & Contractor Tax — Expert Advisory

The IRD generally accepts the percentage of completion method for long-term contracts, which recognises revenue based on the proportion of work completed. The completed contract method (recognising all profit on completion) may be acceptable for shorter contracts. The key is consistency and a defensible basis for the completion percentage — typically certified progress, costs incurred, or physical completion.

Withholding tax applies under s.20B of the IRO when payments are made to non-resident persons for services rendered in Hong Kong. For construction, this typically affects payments to Mainland Chinese or overseas subcontractors who are not registered for HK profits tax. The main contractor may become the deemed agent of the non-resident and liable for the tax withheld.

Retention money is generally not assessable until it becomes legally due and receivable, which is typically when the defects liability period expires and the retention is released. Including retention in income before this point brings tax forward unnecessarily. Ensure your accounting policy matches the tax treatment.

Construction companies can claim: (1) 60% initial allowance + 10-30% annual allowance on construction plant & machinery (excavators, cranes, compressors, power tools); (2) 30% for general plant; (3) Commercial vehicles used in the business; (4) Computer systems and site offices. Scaffolding and temporary works may be treated as revenue expenditure if used and discarded within the year.

Yes, genuine site overhead costs — site management salaries, site office rental, PPE, insurance, and temporary utilities — are deductible business expenses under s.16(1) IRO. Head office overhead allocated to projects should be based on a reasonable and consistent methodology to withstand IRD scrutiny.