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Accounting – Case studies

Hong Kong Limited Company – Offshore status

Here is an explanation how to gain the offshore status for Hong Kong Limited company. We demonstrate the offshore principles on Hong Kong Limited company which was registered on 11th of October 2013.

As the company has incorporated on 11th October 2013, the first Profits Tax Return (“PTR”) would issue to the company in around March to April 2015.
Company’s financial year ended date has determined as 31 March, the first financial year ended date could be March 2015.
If the company commenced its business during the period 11th October 2013 (date of incorporation) to 31st March 2015 (“the period”), you need to prepare the following documents (up to 31st March 2015 ):

 

          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.

 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. 

Startupr is not a CPA (Certified Public Accountant, registered HKICPA – Hong Kong Institute of Certified Public Accountants) firm. CPA services are provided by independent CPA firms.

Startupr is merely acting as an agent in connecting your company and the CPA who has agreed with us that they will provide auditing services. In no way is Startupr acting as a CPA firm or providing auditing service in any way and your solicitor-client relationship is with the CPA and not Startupr. CPA is independent of Startupr and is not an employee of Startupr.
Startupr is not a CPA firm. Startupr is an agent for connecting Hong Kong companies with CPA. Startupr is not a CPA firm, is not engaging in an auditing practice and Startupr does not act as a CPA firm. Startupr does not provide auditing advice.
Nothing on Startupr is audit or CPA advice and you cannot rely on it. You should always consult an audit expert to get certainty of your accounting issues and obligations.

If required by client, Startupr will refer client and coordinate with independent CPA for provision of audit services – Startupr not responsible for actions or omissions of such CPA.

Penalty of late submission of Profit Tax Return

There is certain period you should submit the PTR (Profit Tax Return) to IRD (Hong Kong – Inland. Revenue Department). If you fail to do so, you may be required to pay a penalty. However, you can there is a way to waive the penalty.

Here is an example of an email sent from an accountant firm:

 

Enclosed please find the letter from IRD. The penalty of late submission of HK$1,200 be waived and IRD would not take further action on this occasion.
Please note that it would not be easy to wavie this type of penalty in future. In view of the company is active and may have profit for the year ended 31st December 2013, please provide the documents from 1st January 2013 to 31st December 2013 for our accounting/ audit / taxation purpose.
In order to avoid late submission penalty, please provide the documents on or before 1st June 2014.
Should you have any question, please feel free to contact us.

Hong Kong Tax Return (“PTR”), a “Nil” PTR fillings

Here is another case study when your company was incorporated on 29th February 2012 – here is an manual what the Inland Revenue Department Requires (IRD) once you company is in due to file the Tax Return (“PTR”).

 

Your company was incorporated on 29th February 2012. According to the statutory requirement under the Hong Kong law, your company is required to perform the first audit after 18 months from the date of incorporation. Hence, may I suggest you choose (say 31st December 2012 or 31st March 2013) to be your financial year end date. The first audit will then cover a period from 29th February 2012 to 31st December 2012/ 31st March 2013.

 

If your company has been commenced business, you need to prepare the following documents (up to 31 December 2012/ 31st March 2013):

 

          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, when Profits Tax Return (“PTR”) received, a “Nil” PTR can be filed to IRD, Hong Kong Tax Authority, with the declaration of not yet commence business by the director or company secretary of the company. Even if the company is not yet commenced business, in according to the statutory requirement (Hong Kong Companies Ordinance), the company still need to prepare an annual audited financial statements..

 

Normally, Inland Revenue Department (IRD), the Hong Kong Tax Authority, will issue Profits Tax Return to the company which incorporated over 18 months.  The first Profits Tax Return should be submitted within THREE months from the date of issuance.

Startupr is not a CPA (Certified Public Accountant, registered HKICPA – Hong Kong Institute of Certified Public Accountants) firm. CPA services are provided by independent CPA firms.

Startupr is merely acting as an agent in connecting your company and the CPA who has agreed with us that they will provide auditing services. In no way is Startupr acting as a CPA firm or providing auditing service in any way and your solicitor-client relationship is with the CPA and not Startupr. CPA is independent of Startupr and is not an employee of Startupr.
Startupr is not a CPA firm. Startupr is an agent for connecting Hong Kong companies with CPA. Startupr is not a CPA firm, is not engaging in an auditing practice and Startupr does not act as a CPA firm. Startupr does not provide auditing advice.
Nothing on Startupr is audit or CPA advice and you cannot rely on it. You should always consult an audit expert to get certainty of your accounting issues and obligations.

If required by client, Startupr will refer client and coordinate with independent CPA for provision of audit services – Startupr not responsible for actions or omissions of such CPA.

Accounting Case Study

We are happy to share with you a case study on “how to keep accounting for HK Limited Company“. Here a Q&A from a CPA firm. This is a case where 2 HK Limited companies invoice each other and the business is rendered abroad.

Hi,
XXX told me your company also provides tax advice and accounting. I am also interested in such services. Right away I have a tax inquiry that I would really like to get answered:
I would like to claim offshore profit for XXX Limited. XXX Limited  is purely a services company (consulting services in IT) I read your blog entry about tax in Hong kong and have tried to answer as per the below:  For services/ agency/ commission income, it will be a bit simpler. There are 3 criteria:1.      Who is the customers?-> This is the problematic part I guess, the end customer is in Japan, but XXX’s direct customer is YYY Limited (sub-contracting), which is a Hong Kong registered company.  So the invoices are sent to YYY Limited.

2.      Where and how the contracts are negotiated and concluded?

-> This is done in Japan

3.      Where the services are being rendered?  

-> This is done in Japan

 

Could you offer services regarding accounting and tax advice about items as the above one? Cheers

 

OUR response:

Dear xxx,

 

Thank you for your information.

 

As XXX Limited (“XXX”) paid subcontracting fee to YYY Limited (“YYY”), even two companies are registered in HK, all the services are provided in Japan and no operating activity of the companies would perform in HK except for the admin activity (e.g. bank deposit and payment etc.), it is still valid for “XXX” to claimed profit as offshore.

 

In this situation, please be reminded to keep all the documents clearly. IRD, the tax authority in HK, may require you to provide the documents in future. Please at least keep clearly the following documents:

 

1.      Subcontracting agreement/ contract;

2.      Passport record of the person who provide the said services in Japan;

3.      Bank payment / receipt for the subcontracting transactions;

4.      Please note that IRD may request to disclose the relationship between “XXX” and “YYY”.

We are pleased to provide accounting, auditing and taxation services for the company.

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

 

Best Regards

Startupr is not a CPA (Certified Public Accountant, registered HKICPA – Hong Kong Institute of Certified Public Accountants) firm. CPA services are provided by independent CPA firms.

Startupr is merely acting as an agent in connecting your company and the CPA who has agreed with us that they will provide auditing services. In no way is Startupr acting as a CPA firm or providing auditing service in any way and your solicitor-client relationship is with the CPA and not Startupr. CPA is independent of Startupr and is not an employee of Startupr.