The fixed-asset register is the one accounting record SMEs are most likely to keep on a spreadsheet rather than in their accounting software, and it is also the one the IRD and the auditor inspect most carefully. The combination is unfortunate: the highest-scrutiny record sits in the lowest-control format. The tax computations that flow from the register — initial allowance, annual allowance pools, balancing charges on disposal — are the most likely IRD audit area where a small adjustment compounds into a multi-year correction.
This guide covers what HK accounting software should do for fixed-asset and depreciation handling — the central distinction between accounting depreciation (HKAS 16, useful-life-based, your numbers) and tax depreciation (Inland Revenue Ordinance Schedule 17, pool-based, IRD’s numbers); the initial allowance and annual allowance regime; how the asset register should integrate with the general ledger; the disposal-event accounting that most SMEs get wrong; and the multi-currency considerations when assets are bought from foreign suppliers in foreign currencies.
HK depreciation — tax vs accounting
Two parallel depreciation calculations run for every fixed asset of a HK-incorporated company. They produce different numbers, both correct for their respective purposes, and the gap between them is real money.
Accounting depreciation follows HKAS 16 (Property, Plant and Equipment) under HKFRS or the equivalent under HKFRS-PE. The asset is depreciated over its useful life — typically 3, 5 or 10 years for SME assets — using straight-line or reducing-balance, with the depreciation expense flowing to the P&L and the accumulated depreciation reducing the carrying value on the balance sheet. The figures here are the ones in your audited financial statements, used for management decisions and lender covenants.
Tax depreciation follows the Inland Revenue Ordinance, specifically Sections 37–39 and Schedules 17 / 17A. The asset attracts a capital allowance against assessable profits, computed on a pool basis with statutory rates that do not depend on useful life. The figures here are the ones on your profits-tax computation that flow to BIR51, used for IRD purposes and only for IRD purposes.
The two calculations are reconciled in the tax computation each year — accounting depreciation is added back to accounting profit, and tax allowance is deducted instead — to arrive at assessable profits. The accounting software should support both, with separate registers if needed, and produce the reconciliation cleanly at year-end. Generic SME accounting that supports only accounting depreciation forces the tax allowance to be calculated separately each year, which is one of the highest-error areas in SME tax filing.
Initial allowance and the 60% rate
For “plant and machinery” — broadly, productive assets used in trade — the IRD allows an initial allowance of 60% of the cost in the year the asset is acquired. This is a one-time, year-one only deduction; the remaining 40% then enters the appropriate annual-allowance pool.
The headline rate of 60% is generous and is one of the genuine SME tax features that distinguishes HK from other jurisdictions. Practical points:
- Plant and machinery is broader than it sounds — covers production equipment, office equipment (computers, servers, photocopiers), tools, furniture if used in trade, vehicles used in business. Building structures themselves attract a different regime (industrial / commercial building allowances).
- Year of acquisition is the year-of-assessment in which the asset is first put into use, not necessarily the year of purchase. An asset bought in March 2026 but commissioned in June 2026 (the 2026/27 year) is a 2026/27 initial-allowance asset.
- Apportionment for short years — if the company’s basis period is less than 12 months (first year of trade, change of accounting date), the initial allowance is still 60%, not pro-rated.
- Hire-purchase and leased assets — initial allowance is available on the capital portion of HP instalments paid in the year, not on the full cost upfront. Leased assets where the company is the lessee don’t get capital allowances at all (the lessor does).
The accounting software requirement: support an “initial allowance” line at acquisition that flows separately from accounting depreciation, with the remaining 40% routed to the appropriate annual-allowance pool.
Annual allowance pools — 10%, 20%, 30%
After the initial allowance, the remaining 40% of an asset’s cost enters one of three pools, each attracting a different annual allowance rate:
- 10% pool — assets with the lowest depreciation rate. Includes furniture and fittings, certain heavy plant, ships and aircraft.
- 20% pool — the broadest pool. Includes most production machinery, motor vehicles (with a cost cap of HK$60,000 per vehicle for tax purposes), office equipment.
- 30% pool — assets that depreciate fastest under tax rules. Includes computers and computer peripherals, certain electronic equipment, certain types of plant in specific industries.
Each pool has its own balance and its own annual computation: opening pool balance, plus 40% of new acquisitions in that pool, less 100% of the disposal proceeds for assets disposed of in the year, equals the new pool balance. The annual allowance is the pool rate applied to that new balance. Closing balance carries forward.
Worked example for the 30% pool: opening balance HK$200,000; new computers bought during the year at HK$50,000 (initial allowance 60% × HK$50,000 = HK$30,000 deducted in year one; 40% × HK$50,000 = HK$20,000 enters pool); no disposals; new pool balance before allowance = HK$220,000; annual allowance = 30% × HK$220,000 = HK$66,000; closing pool balance = HK$154,000 carried forward.
The accounting software requirement: maintain separate sub-registers per pool, automatically allocate new acquisitions to the correct pool based on asset classification, calculate annual allowance per the pool rate, and roll closing balance to next year.
Asset register-to-GL integration
The asset register and the general ledger must reconcile at every month-end. The total cost on the register equals the cost on the GL fixed-asset accounts; the total accumulated depreciation on the register equals the GL accumulated-depreciation accounts; the net book value matches.
This sounds trivial but breaks when:
- An asset is purchased and posted to fixed assets on the GL but not added to the register (or vice versa).
- Monthly depreciation is journalled to the GL but the register isn’t updated for the same month, leading to drift.
- An asset is disposed of and the GL reflects the disposal but the register still shows it as held.
- A revaluation is posted to the GL but not to the register, or the register holds at original cost while the GL shows revalued amount.
The accounting software requirement: a fixed-asset module that automatically generates the monthly depreciation journal (so register and GL move in lockstep), validates additions against expected GL postings, and produces a reconciliation report showing register total vs GL balance per fixed-asset account. SMEs running the register on Excel almost always have some drift; software-based registers with auto-journal eliminate it.
Disposal accounting — balancing allowance and balancing charge
When an asset is sold, scrapped or written off, the tax treatment depends on the disposal proceeds vs the asset’s tax-written-down value (its share of the pool balance):
- Disposal proceeds < tax-written-down value — the difference is a balancing allowance, deductible against assessable profits in the year of disposal. The pool balance reduces by the disposal proceeds.
- Disposal proceeds > tax-written-down value — the difference is a balancing charge, taxable in the year of disposal up to the original cost (any excess is a capital gain, not taxable in HK).
The mechanics within a pool are subtler: when you sell an asset from a pool, you don’t extract the asset’s individual tax-written-down value (which doesn’t exist as such in pool accounting). Instead, the disposal proceeds are deducted from the pool balance. If the disposal proceeds exceed the entire pool balance, the excess is a balancing charge for that pool. If the pool balance remains positive after the deduction, the residual carries forward and continues to attract annual allowance.
The accounting side is more conventional: gain or loss on disposal is calculated as proceeds minus carrying value (cost less accumulated depreciation), recognised in the P&L in the year of disposal.
The most common SME error: at year-end the bookkeeper finds an old laptop or piece of equipment that’s been gone for two years but still sits in the register. The catch-up disposal posting in the current year then triggers a tax adjustment that should have been spread across the years involved. The software discipline that prevents this is annual physical verification of the register against actual assets.
Multi-currency for foreign-purchased assets
HK SMEs frequently buy assets from foreign suppliers — production equipment from Germany, office furniture from China, computers from the US. The acquisition cost in HKD for both accounting and tax purposes is fixed at the spot rate on the date of acquisition (or the rate at which the supplier was paid, depending on the company’s policy and consistency).
The accounting software requirement: when an asset is recorded with a foreign-currency invoice, the system should automatically convert at the appropriate rate, fix the HKD value in the register, and not retranslate as exchange rates move. Once the asset is in the register at HKD cost, depreciation runs at HKD; the original FX exposure is settled when the supplier is paid (any FX gain/loss on the payment goes through P&L, not through the asset register).
For broader multi-currency mechanics, see our multi-currency accounting software guide.
How Giga Accounting by 凌峰會計 can help
Giga Accounting by 凌峰會計 ships a fixed-asset module with parallel accounting and tax registers, automatic 60% initial allowance + 40% pool routing on acquisition, configurable pool rates for the 10%/20%/30% pools (and any future regulatory changes), automatic monthly depreciation journals reconciled to the GL, disposal handling with balancing-allowance and balancing-charge calculation, and multi-currency acquisition with HKD-fixed register entries.
Get in touch for a 30-minute scoping call against your current asset base — particularly useful if the register is currently on Excel and you want a clean migration to a software-supported register — or see our flat per-company pricing. For the broader profits tax framework that capital allowances sit within, see our Hong Kong profits tax for small businesses; for the audit-readiness perspective on fixed-asset records, see first-time audit for a HK company; and for the multi-currency context when assets are foreign-purchased, see multi-currency accounting software in HK.
