Fixed Assets and Depreciation for a Hong Kong Company: The Register, the Entries and the Tax Allowances
When a company buys something it will use for years, such as a laptop, a delivery van or office furniture, the cost doesn't belong to the month it was paid. It's recorded as a fixed asset and spread over the asset's useful life as depreciation. In Hong Kong there's a second set of rules on top: for profits tax, your depreciation is ignored and the IRD's own depreciation allowances are used instead.
What to capitalise
A purchase is a fixed asset when it will be used to run the business for more than a year. Typical examples are computers, furniture, fittings and renovation, machinery and vehicles. Repairs that keep an asset working are expenses, not assets.
Most companies set a capitalisation threshold, an amount below which items are simply expensed (a HK$300 mouse, for example). Agree it with your auditor and apply it consistently.
How depreciation works
Depreciation spreads the cost, less any expected residual value, over the asset's useful life. Most small companies use the straight-line method: the same amount each month.
| Year | Depreciation | Accumulated depreciation | Carrying amount |
|---|---|---|---|
| Year 1 | HK$12,000HK$1,000 a month | HK$12,000 | HK$24,000 |
| Year 2 | HK$12,000 | HK$24,000 | HK$12,000 |
| Year 3 | HK$12,000 | HK$36,000 | nil |
Each month: Dr Depreciation expense / Cr Accumulated depreciation. The asset's cost stays on the balance sheet, with the accumulated depreciation shown against it; the difference is the carrying amount.
Useful lives are estimates. Typical choices are 3 years for computers, 5 for furniture and equipment, and the lease term for renovation of rented premises. Set them as a policy, and review them if an asset clearly lasts longer or shorter.
The fixed asset register
Behind the balance sheet line sits a register: one line per asset with
- a description and location;
- the date bought, supplier and cost, with the invoice;
- the useful life, method and residual value;
- depreciation to date and carrying amount;
- for profits tax, which allowance class or treatment it falls under.
Your auditor will reconcile the register to the balance sheet, check additions against invoices and may ask to see some of the assets.
Selling or scrapping an asset
Remove the cost and its accumulated depreciation, and record any difference between the sale proceeds and the carrying amount as a gain or loss on disposal. An asset that's been written off but is still in the register is a common audit finding; keep the register current.
For profits tax: depreciation allowances
The IRD doesn't allow your accounting depreciation as a deduction. In the tax computation it's added back, and allowances under the Inland Revenue Ordinance (Cap. 112) are deducted instead:
- Initial allowance, 60%. On machinery and plant, 60% of the cost in the year of purchase (section 39B).
- Annual allowance, on a pool. After that, an annual allowance on the reducing value of each class of assets at rates prescribed by the Board of Inland Revenue: 10%, 20% or 30% depending on the class (section 39B; CLIC summary).
- Full deduction for computers and software. Computer hardware (other than that built into machinery), computer software and systems, and certain machinery used directly in manufacturing are "prescribed fixed assets" deducted in full in the year of purchase (section 16G). If an asset is also used for other purposes, the deduction is reduced in proportion, and if one is sold, the proceeds are taxable up to the amount deducted.
| Asset | In the accounts | For profits tax |
|---|---|---|
| Office equipment (a photocopier), HK$50,000 | Depreciation over its useful life | Added back; instead a 60% initial allowance in the year of purchase (HK$30,000), then an annual allowance on the reducing value of its pool |
| Laptops and accounting software, HK$20,000 | Depreciation or amortisation over 2–3 years | Added back; instead deducted in full in the year of purchase (section 16G) |
Separate rules apply to buildings, to assets held under leases, and to some other kinds of expenditure. The allowances appear in the tax computation that goes with your profits tax return (the IRD's iXBRL Template Tool has a Depreciation allowances section; see filing in iXBRL on a Mac).
How Certanta handles fixed assets
- Each purchase recorded with its invoice, in the right asset account. Receipts in any language, paid on the company card or a director's personal card.
- Depreciation posted every month, so monthly profit is right all year, not adjusted at the year end.
- The fixed asset schedule your auditor needs, tied to the balance sheet, with every addition and its document one click away.
- Ask about it. "What fixed assets did we buy this year?" is a question for the AI assistant in your portal, answered from your posted books.
- The tax computation prepared from the books, with the allowances, as part of the profits tax return included on monthly plans (see pricing).
Frequently asked questions
What is a fixed asset?
Something a company buys to use in its business for more than a year, such as computers, furniture, renovation, machinery or vehicles. Its cost is recorded as an asset and spread over its useful life as depreciation, rather than expensed when paid.
How is depreciation calculated?
Most small companies use the straight-line method: cost less any residual value, divided by the useful life. A HK$36,000 van with a 3-year life and no residual value is depreciated by HK$12,000 a year, or HK$1,000 a month.
Is depreciation tax-deductible in Hong Kong?
No. Accounting depreciation is added back in the profits tax computation. Instead, the Inland Revenue Ordinance gives depreciation allowances: for machinery and plant, a 60% initial allowance in the year of purchase and annual allowances on the reducing value of each pool (section 39B), and a full deduction in the year of purchase for computer hardware, software and certain manufacturing machinery (section 16G).
What are the annual allowance rates?
Rates prescribed by the Board of Inland Revenue of 10%, 20% or 30%, depending on the class of machinery or plant, applied to the reducing value of each pool.
Can computers be written off in full for profits tax?
Yes, computer hardware (other than hardware that is an integral part of machinery), computer software and computer systems are prescribed fixed assets under section 16G, deductible in full in the year of purchase. If the asset is also used for other purposes the deduction is proportionate, and sale proceeds are taxable up to the amount deducted.
What is a fixed asset register?
A list of every fixed asset with its description, purchase date, supplier, cost, useful life, depreciation to date and carrying amount, and the tax treatment. It should agree with the balance sheet, and the auditor will check it.
Every asset, its invoice and its depreciation
Certanta records each purchase with its invoice, depreciates it month by month, and keeps the register your auditor and your tax computation need.
Open the demo See pricingThis article summarises the Inland Revenue Ordinance (Cap. 112) as published on e-Legislation on 27 October 2026, with the allowance rates as summarised by CLIC. It is general information, not tax or accounting advice. Which allowance applies to a particular asset, and how it is used, depend on the facts; ask your tax adviser.