Tax Audits and Accounting in Regards to a Hong Kong Limited Company with Fion Sen

Michael MicheliniCorporate, Podcast, Taxes10 Comments

fion sen audits t

Thank you everyone – hitting a small milestone episode #50 , thanks for following along and listening again. Working hard on the book – calling it Hong Kong Supercharged – and its over 150 pages now…. deep into company setup and operation here so I hope people like it once I release in …a month or so? Still too early to promise a release date…

Dimitri Prado from onsign.tv sent me an email with some questions about HK company upkeep and also had the following to say:

I’ve been catching up with the podcast, since I haven’t had too much free time lately 🙂 I wonder how you do it with a small baby 🙂

I recently listened to GFA33, I loved the episode, a lot of new information that couldn´t be found anywhere else. As a matter of fact, most of the topics you pick are truly unique and normally pack a lot of info, great job!

Now up for today’s show – this a 2nd part of a 2 part series, we had Fion on a couple weeks ago talking about Hong Kong company and offshore differences – today we dig into some details about bookkeeping and audits in Hong Kong – I know. I am cringing too… no one likes this stuff, at least not me, and listeners have been asking, even I took a question from David Hehenberger at http://davidhehenberger.com/ that he asked me and added it to the question list – so I am glad we got Fion to share with us – also remember her company Bridges is offering a 1,000HKD discount on her normal service fee to open a company with her agency by going to globalfromasia.com/bridges so check that out (note, I will receive a commission so thanks in advance for those who do it)

After the interview I will do some clarifications on terminology that even I got mixed up – Now let’s listen in and learn together…

Topics Covered in this Episode

  • Introduce Fion & Bridges
  • Can you introduce what is an audit in regards to a Hong Kong limited company
  • How much bureaucracy is involved in running a HK corp? I guess accounting + audits are the bulk of it?
  • A friend’s HK corp got audited and the company doing the audit told him that he’ll have to print out all of his receipts (40,000 pieces of paper!). Is that normal? Sounds like a pretty bad level of bureaucracy.
  • When is the first time you need to file it
  • What do you need to have prepared?
  • So you need to keep the paper receipt of everything? Is electronic (pdf / xls) OK
  • How about credit card statements, is that enough
  • ATM withdrawals or Petty cash – for miscellaneous expenses
  • How to keep track of what is a Hong Kong business transaction from a offshore business transaction
  • Currency, how to handle it. All must be in HKD?
  • Is there an audit again if HK government feels something isn’t right?
  • What are some scary stories… Of audits.
  • Should small businesses be worried
  • Or what levels of transactions is where government may check more closely?
  • Some tips for new hk business owners
  • How much do you charge for this service?
  • How do companies need to engage just send you all their paperwork? By mail, or in person?

People / Companies / Resources Mentioned in this Episode

  • IRD (inland revenue department)
  • CPA – certified public accountant
  • Audit – in Hong Kong, have a certified accountant (CPA) verify the financials before it is filed with the government.
  • Director drawing – taking from atm. taking money out of the company.
  • Dealing with offshore transactions outside of Hong Kong, how to file it while also filing domestic company transactions – open a separate company for your offshore transactions, too complicated to keep them separate.
  • Profit tax return in Hong Kong
  • Audit financial report
  • Dormant company
  • IRD (Inland Revenue Department) queries letter

Episode Length 31:26

And there was seems to be miscommunications and understandings about audits and inquiries.

I’ll add a free PDF comparison of these terms in the show notes:

download the comparison of HK audits and US

In USA, for instance, we don’t need audited accounts unless our companies are pretty massive – so many people may not deal with them – what an audit means a CPA (certified public accountant) goes over the books and signs off on them as correctly done. So that is why in Hong Kong we need to pay an accountant – aka CPA to check over our filing and we need to pay them for this – and make sure all the paperwork to back it up is in place. An inquiry is when the Hong Kong tax department questions some of the filing, and then when this happens – you need to provide the documentation and proof to them. So seems like some listeners have heard of people who that has happened to – luckily for me, and most of my business friends – that hasn’t happened to them yet.

And again, check out Fion’s services for opening a company in Hong Kong and many more valuable services, globalfromasia.com/bridges and you’ll get a special 1,000 HKD discount

Bridges_300x250

Ok – hope everyone enjoyed that and wasn’t bored to death – I for one … get the shivers when I hear about bookkeeping and accounting – but I know this is a pain point for tons of listeners so I really hope this helped. I have a feeling I will get more questions and perspectives from more listeners after this one and from people reaching out – so I think we’ll have to do another show in a bit on this topic. It is just a bit overwhelming.

See you next week – we’ll have Jon Wintermeyer from Paymentwall merchant accounts in USA who discusses how Hong Kong companies can use their service as well as how the whole “international merchant account” industry seems to work – so catch you then!

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10 Comments on “Tax Audits and Accounting in Regards to a Hong Kong Limited Company with Fion Sen”

  1. Malakia

    hey Michael!

    Thank you for your work, it’s definitely useful for anybody interested in this topic. But I have to admit that after a long research of informations about opening a company in Hong Kong I think that.. IT’S REALLY expensive!

    A lot of startuppers are considering and choosing Hong Kong to do their first steps but I think that if you are on a tight budget as I am there MUST BE some alternatives that are much better.

    Every consultant tells you that opening a company in HK cost around 10.000 HKD, they forget to tell you that the accounting will be 10.000 hkd more and that the Auditing is 10.000 more.. Oh yes, they advise you to have 10.000 shares of capital, 1 hkd each.. Again 10.000 hkd.

    You have to know it by yourself or they will just send you an email to inform you that it’s time to pay a lot for something that you didn’t expect.

    Even bridges.hk is doing the same.

    In total you have to spend around 45.000 HKD the first year, when I opened my first company in Italy I spent 3.000 hkd… Much better for a startupper with a tight budget. I suppose there are other countries with these opportunities around the world.

    What’s your opinion? Do you think there is a cheaper way to own an Hong Kong company? Now I am looking for a cheap solution to have a company abroad with a gateway for my e-commerce.

    1. Michael Michelini

      Hi Malakia ,

      Thanks for listening and your thorough response. Yes I do understand the frustration with all these unknowns….that is one purpose of doing this very podcast – so I can understand more clearly myself as well as share with others at the same time.

      I talked to Bridges about your question, so this is on their post here, and Agnes there gave me this amazing reply

      Here are a few related points to note for your kind reference:

      – According to Malakia’s case, if his e-commerce business is not involving operations in Hong Kong, then yes, he has other jurisdiction options that could be cheaper. For offshore companies like Seychelles or BVI, the fees would be setup fees (around HK$10,000) + annual maintenance fees, without tax filing and auditing requirements.

      – For people choosing Hong Kong as the jurisdiction to set up a limited company, the core reason is that their business involves operation in Hong Kong, or wanna treat Hong Kong as a stepping stone to go into China or Asia market. Actually, if the entrepreneur’s business operation is involved in Hong Kong, it can say that he has no choice but set up a Hong Kong company (as all business operation in HK is taxable to HK profits tax).

      – There is one wrong concept in Malakia’s message. Actually he can only put HK$1 as the share capital of his company, he absolutely has such choice. The agent will normally advise the client to put HK$10,000 is for the good reputation of the company: a company with certain capital, but not a company with only HK$1 value (people can search a company’s value via a public search). Also, he can use the HK$10,000 share capital in his company for the business’s operation cost use, such as paying HK$5,000up audit fees, paying office rent, etc., so there is no such 45.000 HKD payment amount (the concept is wrong).

      General information about Hong Kong company setup:

      – The reasons of some people picking HK as the jurisdiction are due to its good reputation in the market. Yes, you can pick some other jurisdictions that are cheaper in cost, without the need to prepare accounting and auditing reports, but again, the regulatory of such system is very loose and so your potential suppliers and clients might find it lack of reliance.

      – But for HK company, because of its well-developed financial infrastructure, regulatory structure, reliable online banking system, free (but still safe) transfer of money in and out, low tax rate and sound legal system, although it requires people to do accounting and auditing reporting, many people still prefer to pick this jurisdiction as a good foundation of its firm / business. You can imagine that for a financial system that does not require people to do proper accounting and audit reporting in doing business, such system is not really trustworthy, plus high risk.

      – For the accounting part, actually the entrepreneur can do it by himself if wants to save money, especially for those who do not have many transactions at the beginning. Only the auditing part requires CPA to handle, and our fees start from only HK$5,000 (pricing PDF here – https://www.globalfromasia.com/bridgesaccounting .

      – Here is our introductory email for our Business Startup client, we do not hide anything from our clients, we mention in the first email that the company maintenance needs: Registered Office Address, Company Secretary, Accounting, Auditing Arrangement. Actually, BRIDGES has a very good reputation in the market, one thing is that we do not have any hidden cost, all GOVERNMENT FEES are already included in our package: http://www.bridges.hk/en/professional_services_2_2.php. Yes, we are not the cheapest in town, but we really do know what we are doing and are pro’s (e.g. we’ll invite Paypal / A bank manger into our office to meet our clients so they won’t be running around the city, etc.). When it comes to forming your company and relying on solid advice and knowledge, it makes sense to get a dependable provider to give you peace of mind that your company is in good hands. Below please find some of our recent interviews on startup related topics on South China Morning Post for your interest and learning more:

      Pros & cons of HK vs. offshore registered companies: http://bit.ly/1ovS3kG
      Tips for opening company bank account: http://bit.ly/12ScojU
      Taxing time for HK businesses: http://bit.ly/1lSvKyR
      Vital to keep track of your accounting work: http://bit.ly/VzqATd

      — Standard Email —
      Dear Sir,

      Thank you very much for your kind interest in our Hong Kong Company Incorporation service.

      To start your HK Company Incorporation, our experienced team serving many different foreign entrepreneurs over the last decade is ready in here to provide comprehensive advice to you. We have the whole team here to manage your particular business start-up and company maintenance needs including Registered Office Address, Company Secretary, Accounting, Auditing Arrangement and many more.

      Attached please find our service leaflets with the proposed package summary shown as below for your consideration:-

      EASY STEPS TO SET UP YOUR HK COMPANY

      Service Fee of HK Company Incorporation & Virtual Office

      1. HK Company Incorporation Full Package – HK$9,900 (Package without company secretarial services and certified true copies is available at HK$8,400 only.)
      2. Virtual Office Silver Plus Plan Annual Fee – HK$5,400 (Maximum 2 registered users for Virtual Office Package, and month end round-up payment is required.)
      3. 1-month Security Deposit for Virtual Office – HK$450
      4. Petty Cash for Miscellaneous Expenses – HK$500 (The 1-month security deposit and remaining petty cash are refundable.)

      5. Total – HK$16,250 (Upfront full payment is required before service kick-off.)

      Hope this helps you out! Again, I can do more podcasts or blogs about this – as I still get a lot of questions about it.

    2. Michael Michelini

      A shorter answer, on my own – is “it depends on how many transactions” – but if you do less than 10 transactions a month, it shouldn’t be more than 10,000HKD a year to upkeep a company.

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