Fixed assets
Learn what fixed assets are, how they're taxed in Hong Kong, and how to record and depreciate them.
Published Thursday 6 August 2026
Table of contents
Key takeaways
- Fixed assets are long-term resources your business owns and uses to generate income, including property, vehicles, machinery and equipment.
- In Hong Kong, businesses can claim depreciation allowances on plant and machinery through the Inland Revenue Department, including a 60% initial allowance in the year of purchase.
- Fixed assets appear on your balance sheet as non-current assets and lose value over time through depreciation, except for land.
- Keeping an accurate fixed asset register helps you track depreciation, plan for replacements and maximise your tax deductions.
What are fixed assets?
Fixed assets are long-term physical resources that your business owns and uses to generate income over multiple years. They're also known as property, plant and equipment (PP&E) or non-current assets, and they form a core part of your business's infrastructure.
Unlike items you buy to sell or consume quickly, fixed assets stay with your business for the long haul. Think of the delivery truck that carries your goods, the office space where your team works, or the machinery that powers your production line.
Why fixed assets matter for your business
Fixed assets represent a significant investment, and understanding them helps you make smarter financial decisions. They affect your cash flow when you purchase them, your profit and loss account through depreciation charges, and your balance sheet value over time.
In Hong Kong, businesses can claim depreciation allowances from the Inland Revenue Department (IRD) to reduce their profits tax liability. These allowances let you deduct a portion of your asset costs each year, lowering your taxable profits. Knowing how to manage and record fixed assets correctly helps you claim every deduction you're entitled to.
Key characteristics of fixed assets
Fixed assets share several features that set them apart from other business resources. Understanding these characteristics helps you identify which purchases qualify as fixed assets and how to account for them properly.
Tangibility
Fixed assets are physical items you can see and touch. A forklift, a commercial oven, or office desks all have physical form. This distinguishes them from intangible assets like patents or software licences.
Long useful life
Fixed assets provide value to your business for more than one year. A laptop might serve your team for three to five years, while a building could be useful for decades. This extended useful life is what makes them "fixed" rather than consumable.
Not intended for resale
Your business buys fixed assets to use, not to sell. A car dealership's showroom vehicles are inventory, but the service department's diagnostic equipment is a fixed asset. The intended purpose determines the classification.
Capitalisation and depreciation
When you purchase a fixed asset, you capitalise the cost on your balance sheet rather than expensing it immediately. You then spread that cost over the asset's useful life through depreciation, matching the expense to the periods when the asset generates revenue.
Illiquidity
Fixed assets can't be converted to cash quickly without significant effort or potential loss. Selling a factory or specialised equipment takes time and planning, unlike depositing a cheque or collecting a payment from a customer.
Tangible vs intangible assets
While fixed assets are tangible (physical), businesses also own intangible assets that lack physical substance but still hold value. Both types appear on your balance sheet, but they're accounted for differently.
Intangible assets include patents, trademarks, copyrights, software licences and goodwill. A restaurant's trademarked brand name or a tech company's proprietary software are intangible assets. These items are amortised (the intangible equivalent of depreciation) over their useful lives or tested for impairment if they have indefinite lives.
The key difference is physical presence. You can walk through your warehouse (tangible), but you can't physically hold your business's reputation or a patent (intangible). Both contribute to your business's value and operations, but they require different accounting treatments.
Examples of fixed assets
Fixed assets vary widely depending on your industry, but most small businesses own at least a few of these common types.
- Land
- Buildings and warehouses
- Vehicles, including cars, vans and trucks
- Machinery and equipment
- IT and computer equipment
- Office furniture and fittings
- Tools
- Leasehold improvements
Not every purchase becomes a fixed asset. Most businesses set a capitalisation threshold, a minimum cost below which items are expensed immediately rather than capitalised. For example, a HK$500 keyboard might be expensed, while a HK$15,000 server would be capitalised as a fixed asset.
Fixed assets vs current assets
Your balance sheet splits assets into two main categories: fixed (non-current) assets and current assets. The distinction comes down to how quickly you expect to use or convert them.
Current assets are resources you expect to convert to cash, sell or consume within one year. They include cash, trade receivables (money customers owe you), inventories and prepaid expenses. These items are liquid and support your day-to-day operations.
Fixed assets, by contrast, support your business over multiple years. You don't plan to sell your office building or production machinery within the next 12 months. This longer time horizon affects how you manage, value and report these assets.
How fixed assets are recorded on the balance sheet
Recording fixed assets correctly keeps your financial statements accurate and ensures you can track depreciation for tax purposes. Here's how the process works.
Capitalising the cost
When you acquire a fixed asset, you record its full cost on your balance sheet rather than expensing it immediately. The capitalised cost includes the purchase price plus any costs necessary to get the asset ready for use, such as delivery, installation and testing fees.
Where fixed assets sit on the balance sheet
Fixed assets appear in the non-current assets section of your balance sheet. In Hong Kong, accounting standards under HKAS 16 (converged with IAS 16) govern how businesses recognise and measure property, plant and equipment. Smaller qualifying entities may use the SME-FRF & SME-FRS framework instead.
Accumulated depreciation
As you use a fixed asset, you record depreciation expense each period. The total depreciation recorded since you acquired the asset is called accumulated depreciation. This amount is shown as a deduction from the asset's original cost, giving you the net book value (what the asset is "worth" on paper).
Setting a capitalisation policy
Many small businesses set a minimum cost threshold for capitalisation. Items below this threshold are expensed in the period purchased, which simplifies record-keeping. A common approach is to expense items under a certain dollar amount (for example, HK$5,000) and capitalise everything above it. Your accountant can help you set a policy that balances accuracy with practicality.
Depreciation of fixed assets
Depreciation allocates the cost of a fixed asset over its useful life. Rather than recognising the entire cost when you buy an asset, you spread it across the years you expect to use it.
Why depreciation matters
Depreciation matches expenses to the revenue an asset helps generate, giving you a more accurate picture of profitability each year. It also reduces your taxable profits when you claim depreciation allowances, improving cash flow.
Common depreciation methods
The two most common methods are straight-line and reducing balance depreciation.
Straight-line depreciation spreads the cost evenly over the asset's useful life. For example, a machine costing HK$100,000 with a five-year useful life and no residual value would be depreciated at HK$20,000 per year (HK$100,000 ÷ 5 years).
Reducing balance depreciation applies a fixed percentage to the asset's remaining book value each year. This front-loads the expense, with higher charges in earlier years and lower charges later. It often reflects how assets lose value more quickly when new.
Assets that don't depreciate
Land is the main exception to depreciation. Because land doesn't wear out or become obsolete, it retains its value on your balance sheet indefinitely. Buildings on the land, however, are depreciated separately.
Depreciation allowances and Hong Kong profits tax
For profits tax purposes, the IRD provides depreciation allowances rather than using accounting depreciation. On plant and machinery, businesses can claim a 60% initial allowance in the year of purchase, plus annual allowances of 10%, 20% or 30% on the reducing value of asset "pools".
Certain prescribed fixed assets qualify for even faster write-offs. Under section 16G, specified manufacturing plant and machinery, computer hardware and computer software can be written off 100% in the year of purchase. This excludes leased and hire-purchase items.
The fixed asset lifecycle
Every fixed asset moves through a predictable lifecycle, from the day you acquire it to the day you dispose of it. Understanding this cycle helps you plan purchases, maintenance and replacements.
Acquisition
The lifecycle begins when you purchase or construct a fixed asset. You record the capitalised cost on your balance sheet and set up the asset in your fixed asset register with details like purchase date, cost, expected useful life and depreciation method.
Use and maintenance
During its working life, the asset contributes to your operations. Regular maintenance keeps it running efficiently and can extend its useful life. You record depreciation each period to reflect the asset's declining value.
Review and impairment
Periodically, you should review whether your fixed assets are still worth what's recorded on your books. If an asset's recoverable amount falls below its carrying value (due to damage, obsolescence or market changes), you may need to record an impairment loss.
Disposal
When you sell, scrap or retire a fixed asset, you remove it from your balance sheet. Any difference between the disposal proceeds and the asset's net book value creates a gain or loss on disposal. For Hong Kong profits tax, a balancing charge may arise if pool disposal proceeds exceed the pool's reducing value. A balancing allowance on plant and machinery pools arises only on cessation of the business.
Fixed asset management for small businesses
Good fixed asset management protects your investment, keeps your accounts accurate and helps you claim every tax deduction available. Here are the key practices to follow.
Keeping a fixed asset register
A fixed asset register is a detailed list of all your business's fixed assets. For each asset, record the description, purchase date, cost, location, depreciation method, useful life and accumulated depreciation. Accounting software can automate much of this tracking.
Tracking depreciation
Calculate and record depreciation consistently, whether monthly, quarterly or annually. Accurate depreciation records ensure your financial statements reflect true asset values and support your tax filings.
Planning for replacements
Fixed assets don't last forever. Review your register periodically to identify assets nearing the end of their useful lives. Planning ahead lets you budget for replacements and avoid unexpected disruptions.
Claiming depreciation allowances in Hong Kong
Work with your accountant or tax advisor to maximise your depreciation allowance claims. Ensure your records clearly identify which assets qualify for the 60% initial allowance, which fall into the 10%, 20% or 30% annual allowance pools, and which prescribed assets qualify for a 100% immediate write-off.
Manage your fixed assets with confidence using Xero
Tracking fixed assets, calculating depreciation and staying on top of your tax obligations is simpler with the right tools. Xero's fixed asset management features help you maintain an accurate register, automate depreciation calculations and keep your financial records organised. Try Xero today and get one month free.
FAQs on fixed assets
Here are answers to common questions about fixed assets for Hong Kong businesses.
Is inventory a fixed asset?
No. Inventories are current assets because your business intends to sell them within the normal operating cycle. Fixed assets are held for long-term use, not resale.
Are intangible assets the same as fixed assets?
No. Fixed assets are tangible (physical), while intangible assets lack physical form. Patents, trademarks and goodwill are intangible assets, whereas machinery and buildings are fixed assets.
How are fixed assets taxed in Hong Kong?
Hong Kong has no VAT or GST, so there's no input tax to recover on purchases. For profits tax, you claim depreciation allowances on plant and machinery rather than accounting depreciation. The IRD allows initial and annual allowances that reduce your taxable profits.
How do you calculate net fixed assets?
Net fixed assets equal total fixed assets minus accumulated depreciation. This figure, also called net book value, represents the remaining value of your fixed assets on the balance sheet.
Can fixed assets increase in value?
Some fixed assets, particularly land and buildings, can appreciate in market value. Under HKAS 16, businesses can choose to revalue certain assets to fair value, recognising gains in equity. However, most small businesses use the cost model and don't revalue assets upward.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.