Again like the legal system, based on the UK tax system, as well as local, a lot of accountants are either Australia or UK trained. The system is quite easy to follow, but say compared to the UK, there is less information, making more difficult and subjective when examining accounts. There are tax specialists for those of us who have to declare personal global income.
There are a lot of accounting firms in Hong Kong. Many local firms service the local business community providing book keeping, audit and tax filing services. Level of English can be low or non-existent with varying degrees of experience in dealing with overseas clients. Look for a firm that has international experience and an appreciation of the level of service the majority of Hong Kong companies owned by overseas nationals expect.
Most Hong Kong companies choose the traditional yearend of either 31st December or 31st March. For a newly incorporated business, there is the option for their first accounting period to file accounts for the first eighteen months after the date of incorporation and annually thereafter.
Profits Tax Returns must, as a general rule, be submitted within one month from the date on which they are issued. Since these returns are normally sent out at the start of April, this means that returns must be submitted by the end of month.
Obligations as an employer requires the business to complete an employers' return detailing the remuneration paid to its employees. These are usually sent out in April of each year and are usually required they be submitted to the Inland Revenue Department (IRD) by the end of April.
The business is also required to inform the IRD when an employee joins the company within three months of the date of commencement of the employment. Also to inform the IRD within one month before any cessation of employment, and finally within one month when an employee is leaving Hong Kong.
Depreciation Allowances, tax deduction allowed for all business–related expenses. General depreciation allowance for plant and machinery – 60% initial allowance and 10–30% annual allowance. Immediate write-off is allowed for capital expenditure on plant and machinery specifically related to manufacturing, and on computer hardware and software. 20% initial depreciation allowance and 4% annual depreciation allowance for investment in industrial buildings. Annual depreciation allowance for commercial buildings is 4%. Capital expenditure on refurbishment for business is allowed to be written off against tax over five years. Losses allowed to be carried forward for set-off against future profits without time restriction.
Obligations to keep business records, under the Inland Revenue Ordinance every person carrying on a trade, profession or business in Hong Kong is to keep sufficient records of his income and expenditure to enable the assessable profits to be readily ascertained.
The records prescribed in the Ordinance include, books of accounts recording receipts and payments, or income and expenditure. Vouchers, bank statements, invoices, receipts. Records of the assets and liabilities of the person in relation to that trade, profession or business. Records of all entries from day to day of all sums of money received and expended in relation to that trade, profession or business. Where that trade, profession or business involves dealing in goods - a record of all goods purchased, and all goods sold in the carrying on of that trade, profession or business showing the goods, and the sellers and buyers in sufficient detail to enable the Commissioner to readily verify the quantities and values of the goods and the identities of the sellers and buyers, and all invoices relating thereto. Statements of trading stock held by the person at the end of the accounting period and all records of stocktaking from which any such statement of trading stock has been prepared. Where that trade, profession or business involves the provision of services, records of the services provided in sufficient detail to enable the Commissioner to readily verify the entries.
Such records shall be retained for a period of not less than 7 years.
Failure to comply with the requirements of the Ordinance without reasonable excuse may be liable to a maximum fine of $100,000.
The rate for the Business Registration Certificate (BRC) levy is reduced to HKD 250 per annum with effect from July 19 2013.
For some companies business model the idea of having a Hong Kong company with a representative office in China is an attractive possibility. The China Rep' Office can enter into contracts, for example, hire staff, sponsor overseas nationals for visas and rent office space. China tax is slightly below 30% for individuals.
However, since it is the Hong Kong Company that does the business in China and NOT the representative office, it does not attract corporation/profits tax in China. Local tax is payable in China by the representative office based on its monthly expenses level. For details, the services of a local accountant from the area would need to be engaged, as rates vary from province to province.
The compliance work for an organisation during a tax year will largely depend on the size and nature of the business. The following are the general Hong Kong tax compliance issues for an organisation.
Business Registration Certificate ("BR") renewal
Profits Tax filing supported with Audited Accounts
Employers Return of Remuneration & Pensions
Maintaining Company records
Personal Tax Returns are normally issued for completion in April cover the past 12 months ending 31st March.
The return should be submitted in May or June.
The first payment is expected in October to Decemeber, the final payment made in the following January to March.
Still under further development.....
Law and Taxation
The BVI (British Virgin Islands) is a British Dependent Territory which became self-governing in 1967 and is a member of the British Commonwealth. The legal system is based on the English common law supplemented by local ordinances. There are no taxes levied on IBC companies with the exception of the annual government license fee. Companies that fail to pay their license fee by the due date are subject to penalties and will be struck off for non-payment five months after the due date. There is no exchange control or restrictions on the flow of currency in or out of the territory.
Basic requirements for setting up BVI Company.
1. Each BVI company must have a Registered Agent and Registered Office in the BVI.
2. Company Name expressed on the Certificate of Incorporation will show English and Chinese Names (if any). The Memorandum and Articles of Association ("&A") will show the Chinese Name if a Notary Public declares the name is a true translation/transliteration of the English name. Additional procedures undertaken to add Chinese name to M&A. Chinese language M&A available for reference only.
3. The minimum number of Director's is at least one and corporate Director's are allowed. Register of Director's should be kept at the Registered Agent and will not appear on public record.
4. Each company must have at least one shareholder. Register of Shareholders should be kept at the Registered Office but need not be available for public inspection.
5. A standard IBC (International Business Corp') is usually incorporated with 50,000 shares authorised to issue either at par of USD1.00 or no par value option.
6. There are no requirements for annual returns, annual meetings or audited accounts.
So why BVI and not other places like Cayman, Turks & Caicos, Isle of Mann etc? In HK the BVI is more popular, cost effective and under the UK law framework.
People are paid gross; it's your responsibility to file your Tax Return and pay. The first time you will be assessed for two years, current and projected. The projected year you will get back when you leave HK or retire. My advice, see an accountant for at least your first Tax Return. If you're taxed globally, there are tax specialists that can help. For those who may need some help with their tax bill, the banks do give loans for that purpose.
Personal Tax Returns are normally issued for completion in April cover the past 12 months ending 31st March . The return should be submitted in May or June. The first payment is expected in October to Decemeber, the final payment made in the following January to March.
Benefits such as pure health insurance, with no savings element are tax free. Subsidies such as travel are subject to tax. Company cars are tax free, however that's a tough one to argue if you're the only employee.
Only profits sourced in Hong Kong are subject to tax
No tax on capital gains or dividends. No interest tax
Tax deduction allowed for all business related expenses
No GST / VAT (sales tax).
Progressive Salaries Tax after allowances & deductions.
$0 - $40,000 2%
$40,001 - $80,000 7%
$80,001 - $120,000 12%
$120,001 and above 17%
Standard rate of tax is 15%
Single person's allowance $120,0000HKD
Married person's allowance $240,000HKD
For each child born during the year, the child allowance isl $70,000HKD. A furhter $70,000HKD for each additional dependent child.
Expatriates who have their accommodation paid for by their company should be taxed at 10% of the rateable value. However, generally the Inland revenue in reality tax the individual at 10% of thier salary instead.
The allowances show are some examples of those available. There are further allowances available for those who are responsible for aged dependent family members and those with disabilities.
Tax planning and asset analysis is specific to a particular company and thier given situation. Firms that are able to offer this kind of service seperate the local accountants who will incorporate your business and deal with book keeping, audit and compliance, from those who have experience in dealing with overseas clients requiring a broader range of services.
A simplified, general example of this may be a company that is incorported in China, may be find it to their advantage to have a HK Limited company with a Rep' Office in China instead.
A consultant working in various countries would like to explore the possible tax advantages of declaring income in Hong Kong. The individual is looking into how to become resident in Hong Kong for tax purposes.
A Hong Kong company can enter into contracts to earn consultancy fees from outside HK in order to qualify for an "off shore" profits claim. If it is successful, the profit of the company will be exempted from Hong Kong tax. The company can employ its shareholder as a Director to perform the consultancy work outside HK. As long as it can be proved to the HK Tax Dept that all works are completed outside HK, the Director will be exempted from paying HK tax.
The potential tax payer has to make an application to the Inland Revenue Department with supporting documentary evidence to substantiate the claim. However, it is a cost benefit analysis exercise, to see how much money the company plus the individual, can save against the professional costs in preparing and putting forward the claims. The processing time is also a factor taking anything from 18 to 24 months to complete.
Once the tax department agrees to the claim it will be valid for 3 to 4 years. Then the Inland Revenue will come back with enquiries to re-confirm that the "off shore" status is still applicable. The degree of enquiry the second around will be much more general compared to the initial assessment.
For point of reference pension income earned outside HK does not attract Hong Kong tax.
The information supplied is for reference only and is by no means exhaustive and comprehensive. We have high-lighted what we believe to be the key areas of interest to foreign owned businesses and overseas nationals on secondment. Furthermore the information is subject to change without notice. Should you need professional assistance of an accounting nature, contact a (CPA) Certified Public Accountant.