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3 Things to Remember When Planning Your Tax Strategies

Contributed by Bridges Executive Centre
11 May, 2018


In the blink of an eye, it's the beginning of a year again, which means you could start over to think about how to deploy your business plans, and at the same time, not to miss any local compliance duties that might affect your company's operation, especially if you are a foreign entrepreneur. Ring a bell? Yes, don't forget the principle "the earlier the better" – when it is talking about tailoring your own tax strategies and being well prepared to report your taxes to the Inland Revenue Department (IRD) on time in this year's Apr, not too much time left honestly.

** Commencing from the year of 2018/19 (i.e. on or after 1 April 2018), the HK profits tax rate will be reduced from 16.5% to 8.25% according to the newly proposed two-tier profits tax system. On this system, the tax rate for the first HK$2 million of profits is being halved to 8.25%, and 16.5% will be kept for profits exceeding that amount. Without a doubt, this new measure will provide huge tax relief to start-ups, SMEs and international entrepreneurs like you, provided that 8.25% is an extremely low profits tax rate among global market.

No clues yet on where to start? Let's take a closer look at some of the basic TAX FILING & PLANNING areas that need your attention if you have a business in HK:

Get Familiar with the Compliance

There are 3 types of annual tax returns the IRD will issue to those entrepreneurs doing business in HK for more than 1 year since the date of incorporation: Employer's Return, Profits Tax Return and Individual Tax Return. Different tax return has different kinds of compliance. Taking Employer's Return as an example: there are several types of document you need to file for your employees compulsorily (e.g. completed BIR56A and IR56B – the Employers' Return of Remuneration and Pensions Forms; completed IR6036B that is about remuneration paid to persons other than employees; etc.), for which you might feel dizzy when seeing all these requirements and a little nervous that some of them could be filled out incorrectly, and your tax return will get rejected at the worst case.

So yes, if you are not familiar with HK tax compliance, it can give you a real headache (although HK tax regime is rather simple, its documentation filing requirements are relatively rigorous due to the well-developed regulatory system). For you, it could be a stress-relieving assurance if all your tax filing duties are managed by a professional and experienced agency in HK with good reputation.

Accurateness & Effectiveness

Please keep this in mind: if your accounts and audit reports are not built properly from the beginning, it is not easy to further execute an effective tax efficiency plan in the financial reports when you start making good profits at a more matured stage. Some people might think they can just prepare some simple bookkeeping records by themselves for their businesses since they don't have much resources – that's a misconception indeed – provided that every HK business is required to submit audit reports to the Government every year in general, if the full set of accounts including Profit & Loss Accounts, Balance Sheet, General Ledger, Trial Balance, etc. is not available for the auditors to assess, they just can't finish the auditing procedure, and nearly unable to give any advice on tax compliance strategy.

In fact, getting a reliable accounting service provider to help is not as hard (and expensive) as you think, simply check out the rate here to have an idea. After your accounts and audit reports are well arranged at an early stage, next you will be able to review the whole financial picture of your business in advance, and receive the tax computation information for fixing your financial strategies in the most tax-efficient manner.

Yet, not only we need to focus on financial accurateness and optimization, timeframe is also one of the key elements. Given that you'll not want to face penalties or prosecution due to late submission of tax return (or so far without noticing it at all), some agencies will even send you reminders and related advice on your coming tax reporting date and you would never, ever miss the deadline! For those outstanding service providers that are capable of doing this, it would need years of battlefront experience or in-house accounting specialists to take care of their clients, case by case, from head to toe.

Tax Exemption for Offshore Company?

As one of the most flourishing market in the world, HK has adopted a lot of overseas investors. Some of them (including you??) might be running an offshore business while the operation does not really take place in HK. You may wonder how your company can be claimed as an 'offshore business' by the IRD and it will then be able to enjoy tax exemption? To put it simply, certain criteria need to be met to qualify for such definition, e.g. the terms of the purchase and sales contracts are completely negotiated and conducted with suppliers and customers outside HK; the service is performed in a place wholly outside HK; etc. Please click here for details of qualifying for 'offshore claims' submission, while one important key is to prove the profits are not liable to HK Profits Tax by proper planning at the initial stage.

As seen, there are heaps of tax compliance issues that could be affecting your final tax reporting and optimization result. Although different accounting & tax advisors have their own specialties, how do you know which one can be trusted? For newbies, trying to go for those with word of mouth, years of experience and a solid foundation might help. If you are still unsure how to start or execute the whole arrangement properly, simply send a private message to us today!

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