Questions Asked During a Hong Kong Audit and Tax Process

Michael MicheliniBlog, Corporate, Taxes, Upkeep0 Comments

Love doing your taxes?

Didn’t think so.

But, being educated about the main points is important. It affects the decision making you will make in your business.

At our corporate services division (JV with Unipro Consulting Limited) we get many questions about taxes. It is such a pain point, we talk about it a bit on our workshop calls in our GFA VIP members forum – today I received permission from a client to post this while removing the sensitive information of him and his business. Hope these questions help you out:

*1) Specifically what proof is required to demonstrate director’s residence
/ company’s operation outside of HK? I’d want to indicate Philippines, not Germany. Utilities? Bank Account? Visa? Other?*

It’s not about proving where else they are a resident, but more proving they are not a resident anywhere in Hong Kong.

But yes, proof of residence is done by showing a government, bank, or utility bill from that country.

You can be a resident in multiple places, and you can choose which residency to show to someone asking for it.

*2) In order to prove financial capability, can I “borrow” company funds
for 1-2 months by, for example, taking a director’s loan, rather than
paying out dividends / salary at this stage? If not, please see 3)*

What is this financial capability used for? Something to prove in Hong Kong or outside of Hong Kong?

Seems like this is for something outside of Hong Kong, and you want to take money from your Hong Kong company and put it elsewhere to show to a government or a financial institution?

As far as how to take the money out – it is all how you account for it. If you take out a million dollars from your Hong Kong bank account and put it into your Philippines personal bank account, it can be as a loan. The board of directors of the HK company would need to approve that, and a fair loan percentage should be granted to the HK company for this service.

Of course I believe you are the sole owner and director, so anything goes. But if it is for only a few months and then sent back, I would suggest a 0% loan from the company to the director is OK.

*3) Assuming I make an offshore claim, what is the best way to pay myself.
Dividends? Salary? If I’m not resident in HK, does it matter whether the
money is deposited into my personal HK account or a foreign account?*

You are asking this question as a director of the Hong Kong company. A director is allowed to draw a salary without being a local employee of the company.

You should also check into what taxes you’d need to pay personally – as taking a salary is taxed differently from taking a dividend.

If all is the same to you, I’d suggest taking a dividend instead of a salary. But is the company making or losing money? If it’s losing money, taking a dividend doesn’t make sense as more is going out from the company than going in.

*4) What paperwork and fees are required for an offshore claim filing.*

This is a 2 part question.

As mentioned in the offshore claim blog post, you need to prove in your financial statements that:

  • No staff in Hong Kong
  • No fulfillment of services, logistics, or web hosting in Hong Kong
  • No clients in Hong Kong
  • No deals signed / done inside Hong Kong border

This under most circumstances done at the same time as the first audit, which is when you receive your Profit Tax Return, in 18 months after filing the company.

The cost depends on the complexity of your situation, the amount of transactions, but ranges between 15,000 to 35,000 HKD. It a also depends if your business model is standard and clear for the accountant and HK IRD to process.

*5) With respect to offshore claim, is any of the following business activity problematic? Service providers in HK (membership fees, Accounting / Incorporation Services, etc).*

Buying products or services in Hong Kong is not a problem or interference with a Hong Kong company. It’s more about the sell side, the earning of income side.

*6) What documents / records would be required for a HK Accountant’s Audit at the end of the year?*

Anything that affects the financials of the business. Normally this is:

  • Bank statements showing the income and outflow of the money.
  • Paypal / online bank statements – technically the same as bank accounts above
  • Credit card statements – showing expenses of the company
  • Cash transactions – If you have an expense account – this should tie back to the bank account transactions, if you are taking ATM withdraws.

But as the name “audit” implies, the auditor can request more information from you. Their job, as an accredited Hong Kong CPA, is to ensure they have done their due diligence on your business. They are signing off, using their company name and license, that what they have identified in your company is true and clear.

*7) In order to capitalize my HKD 10,000 initial (I think that was it), do
I need to make a transfer in personally (as opposed to allocating client
funds).*

This is a weird one I know. You don’t have to fund the 10,000 HKD initial capital share amount most of us select when registering a new Hong Kong limited. The way it works is that this is the liability you as the director / owner of the company have should there be an insolvency issue.

*8) Bit of a tangent, but is there any possibility for a low fee USD
denominated CC via HSBC (or elsewhere), or nothing straightforward?*

This is for sure a pain point! So many international business owners who have a Hong Kong company are tired of having to get double FX exchange rates from USD to HKD on their credit card statements, and then need to exchange their bank account balance of USD into HKD in order to pay the balance. We are keeping an eye out for you, we need it for ourselves too. We have been doing our best to keep up with various credit card options on this blog post. Also have new ones as soon as they come out in our private member’s forum

Phew! That was a lot – hope it helps you out and as a partner of Unipro Consulting Limited, I hope you can consider our products and services in the corporate services division – www.globalfromasia.com/products/

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