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Accounting and Auditing Hong Kong Limited Company – Case study – A I.

Read a case study regarding accounting/auditing of a Hong Kong Company. Company was set up on December, 2013.

Dear xxx,
As your company has incorporated on 17th September 2013 and determined 31st March as the company’s financial year ended date, the first Profits Tax Return (“PTR”) normally issue to the company by IRD (HK tax department) in March 2015 and need to complete and submit to IRD within 3 months since the issue date (i.e. on or before June 2015).
According to our discussion previous email, in order to avoid state the fact of over 18 months of first audit, the first financial year end date would be March 2014.
For the accounting and audit, please provide the following information:
– All sales invoices/ consulting service invoices;

– All purchases invoice/ subcontractor’s invoices;

– All service agreement;

– All expense receipts;

– All bank statements;

– General ledger and management account (i.e. Trial Balance, Balance Sheet and Income Statement). If this one you cannot provided, we can provide bookkeeping service to handle it.

Should you have any question, please feel free to contact us.

Your accountant J

 

Please not that Startupr is not a CPA firm and we don’t provide auditing services.

Hong Kong tax exemption – Limited Company

Startupr can introduce you to an accounting & auditing company. Here is an example of one of our client’s request & reply of a CPA firm.

 

1. For transaction of payments which I am receiving from my clients in China, Thailand, Vietnam and with payments to my corporate partners for providing the services, what will the taxes involved be for my company? The reason for asking is that I was informed that these transaction will not involve taxes in Hong Kong since the transaction did not happen in Hong Kong and the service provider are not from Hong Kong. So will appreciate your clearance on this.
2. With regards to the book keeping of my company account, does your team provide the service? And if so, what are the data I need to provide?
3. The expected turn around by year end is between 400,000 to 800,000 Euros, should there be taxes involved, what will the tax bracket be? And if you have any suggestion to keep it lower.
4. If I were to invest a good portion of the profit within the company into new ventures under the company name, will this help on the taxes should they be chargeable.
ANSWER:

1/ Yes, if all your business transactions (sales and purchase/ services) were negotiated and concluded outside HK; goods shipped not via Hong Kong, your company may apply offshore claim. IRD, the HK tax authority will send you a offshore tax queries letter (approx. 3-5 pages) and you required to reply with supporting documents such as your passport record, sample of full set of sales and purchase invoice and bill of lading, contract as well as relevant email correspondences. Once IRD approved your company is offshore, the company’s profit is not subject to HK profits tax.

2/ Yes, we shall provide you the book keeping, auditing and taxation services as well as the professional service for answering the offshore tax queries as mentioned in point 1.

If you use our services, generally you are required to provide us all bank statements, sales and purchase/ service invoices, all agreement and expenditure invoices/receipts. We shall then generate the management accounts for your approval before auditing.

3/ HK profit tax is calculated by 16.5% on the assessable profits for the year (e.g. year 2013/14) and on top there is provisional tax for next year(2014/15) by 16.5% on the assessable profit year 2013/14, that’s mean pay double.

However, as mentioned in point 1, if your company is approved offshore company, the profit is not subject to HK profits tax.

4/ I don’t understand well your question, would you please advise in details.

Before the engagement, there are some information that we would like to confirm with you as follows:

  • Your company is incorporated on 7/12/2009, your first audit and tax filing should be completed;
  • If, please provide copies of the latest audited financial statements, tax return and tax assessments for our reference;
  • How many transactions per year the company has during the period from the latest reporting period up to this financial year ended 31/3/2014 or 31/12/2013?

Once we received your documents & information, we shall then send you our fee quotation.

Hong Kong Limited Company – Accounting & auditing

Let us explain the requirement & procedure of accounting & audit issues and HK taxation as well. This is a case study for a company incorporated in September 2013.

Accounting & auditing

According to the statutory requirement under the Hong Kong law, the first set of financial statements should be prepared for period covering not more than 18 months from the date of incorporation. Hence, may I suggest you choose (say 31st December or 31st March) to be your financial year end date? Your first audit will then cover a period from the 16th September 2013 (date of incorporation) to 31st March 2014 / 31st December 2014.

If your company commenced its business during the above period, you need to prepare the following documents (up to 31st March 2014 / 31st December 2014):

– All sales invoices/ consulting service invoices;

– All purchases invoice/ subcontractor’s invoices;

– All expense receipts;

– All bank statements;

– General ledger and management account (i.e. Trial Balance, Balance Sheet and Income Statement). If this one you cannot provided, we can provide bookkeeping service to handle it.

If not yet commenced business, you may report a “Nil” profits tax return (“PTR”) to Inland Revenue Department (“IRD”), Hong Kong Tax Authority , with the declaration of not yet commence business by the director or company secretary of the company. But please note that you are still required to perform first audit in accordance with the Hong Kong Companies Ordinance which mentioned above.

Taxation

Normally, IRD will issue your first PTR to the company after 18 months from incorporation date. It should be submitted within THREE months from the date of issuance of PTR. Once reporting the financial year end date to IRD, the submission deadline of the annual PTR together with the audited financial statements are as follows:

 

 

Financial year end as at Tax filing date Documents ready for audit
1) 31st March 15th Nov Not later than 1st Sept
2) 31st December 15th August Not later than 1st June
3) Other dates than (1) or (2) e.g.30th June 30th April Not later than mid of Feb

If all your company’s income are sourced outside HK, your company will not be subjected to HK tax, you may apply offshore profits claim once you submitted your PTR and financial statements. IRD will then issue an offshore claim queries letter to you for the proof by providing the passport of the directors/ sales representatives and some samples of sales and purchase/service fee invoices, contracts/agreements and shipping documents e.g. bill of lading. We shall provide the professional service for answering this offshore tax queries to you.

We hope the above will give you a clear picture of HK audit and taxation system. If you choose our service, please let us know which financial year-end date you will use, your business nature, commencement date of your business and volume of transaction during the above mentioned period. We shall then send you a fee quotation for the accounting, audit & taxation services.

Should you have any question, please feel free to contact us.