Hong Kong

What are Audited Financial Statements?

As part of the financial accountability that most entities provide to investors, board members, and constituents, the use of audited financial statements are common. Essentially, audited financial statements are simply the accounting documents that are prepared by a Certified Public Accountant on behalf of a business or non-profit organization. Here are some basic facts about audited financial statements, and how they are used. The source documents for the audited financial statements are usually provided by the organization wishing to have an auditor prepare a financial statement. This will often include a wide range of financial documents, such as Accounts Payable and Receivable information, expense reports, budgets, and any other type of financial record that the organization has in its possession. The purpose of the accountant is to take these various financial statements, evaluate and cross-reference them, and provide a professionally prepared audited financial statement that the organization can then present […]

Tax Planning for Hong Kong’s Territorial Source Principle

Territorial Source Principle Hong Kong Tax law adopts a territorial source principle of taxation. It means Hong Kong taxable profits only arise while such profits are derived from a trade, profession, or business carried on in Hong Kong. Basically, it seems quite clear and applies easily. However, over the years disputes about this subject and many related authoritative court decisions emerged, currently the Inland Revenue Department (IRD) will consider the following principles to evaluate whether the Hong Kong income is taxable or just offshore income only: – Matter of fact; The operations test; Gross profits from transactions; Place where decision is made; and Business presence overseas Based on the above principles, the Inland Revenue Department (IRD) also will classify whether profit is from trading business or from manufacturing business. Taxation of Trading Business For trading business, Inland Revenue Department’s practice to determine the locality of profits from trading in goods […]

Tax on Profits from Sale of Property in Hong Kong

Hong Kong does not have capital gain tax and under usual circumstances gains from disposal of property are not subject to tax.      Under Hong Kong tax law, “profits arising from the sale of capital assets” are outside the scope of charge for profits tax. Therefore, if the property sold is a capital asset, the profit arrived from the disposal will not be subject to tax. On the other hand, if the purchase and sale of property was trade, the profit will be assessable to profits tax.      In determining whether an asset was acquired as a capital asset or trading stock, the Revenue will look at (1) the taxpayer’s intention at the time of the acquisition; and consider (2) whether the taxpayer had engaged an adventure in the nature of trade. Generally, if the taxpayer bought a property and resold it within a short period, say, within […]

Tax Obligations of an Employer in Hong Kong

1. Keeping payroll records (1) Your tax obligations commence when you hire the first employee (2) On hiring the employee, you have to maintain a record of that person’s: (a) personal particulars: name, address, identity card or passport number with country of issue, marital status (b) nature of employment: full time or part-time (c) capacity in which employed: e.g. sales manager, salesman, worker, in-house lawyer, accountant, director (d) amount of cash remuneration: regardless of denomination in domestic or foreign currency and remuneration paid overseas (e) non-cash and fringe benefits: such as quarters, holiday journey benefits, share award, share option (f) employer’s and employee’s contributions to the Mandatory Provident Fund (MPF) or its equivalent (g) employment contract and amendments to terms of employment (h) period of employment (3) You have to inform the Inland Revenue Department (“IRD”) the following: (a) any change in the employee’s personal particulars (such as change in […]

Tax Administration and Compliance in Hong Kong

Persons Subject to Tax in Hong Kong Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong, are subject to tax on all profits (excluding profits arising from the sale of capital assets). If a person sells his flat or any property as part of a profit-making scheme, it will be regarded as a business and he must pay tax on any profit made. The assessable profits (or adjusted loss) are the net profits, or loss–other than profits (or loss) arising from the sale of capital assets–for the basis period, arising in or derived from Hong Kong. Source of Income Income is considered sourced where the operation that generates it takes place. Thus all profits arising in or deriving from Hong Kong are taxable, except (1) offshore income from operations that are substantially conducted outside Hong Kong, (2) dividend receipts and […]

Summary of Features of Hong Kong Company (Limited by Shares)

  General Information Company Law Companies Ordinance, Cap. 32 Type of Company Private Company Limited by Shares Language of Legislation and Corporate Documents Chinese or English or Both Taxation of Foreign Profits Nil Exchange Controls None Length of Time to Incorporate Approximately 1 – 5 days Shelf Companies Available Yes Corporate Names Name Restrictions Names identical, similar or offensive words Endings and Abbreviations Required “Limited” word must be used completely Length of Time to Verify Name Availability One working day Reservation of Names Permitted No Language of Name Chinese or English or Both Name of Banks, Insurance, Investment Fund, Trust Company or their equivalents requiring consent or license Yes Capital and Shareholders Minimum Number of Shareholders One Local Shareholders Required No Corporate Shareholders Permitted Yes Disclosure of Shareholders No Minimum Authorized Capital Required There is no minimum stated. Standard authorized capital is usually HK$10,000 Bearer Shares Permitted No Registered Shares […]

Subsidiary Legislation to Hong Kong New Companies Ordinance

For the implementation of the new Companies Ordinance (“the new CO” (Chapter 622 of Hong Kong Laws), the following subsidiary legislation has been made to provide for the relevant administrative, technical and procedural matters. The subsidiary legislation will be brought into operation together with the new Companies Ordinance on 3 March 2014. You need to use Adobe Acrobat Reader to view or download the documents in pdf format. 1. Companies (Words and Expressions in Company Names) Order (L.N. 7 of 2013) 2. Companies (Disclosure of Company Name and Liability Status) Regulation (L.N. 8 of 2013) 3. Companies (Accounting Standards (Prescribed Body)) Regulation (L.N. 9 of 2013) 4. Companies (Directors Report) Regulation (L.N. 10 of 2013) (as amended by Resolution of the Legislative Council (L.N. 47 of 2013) ) 5. Companies (Summary Financial Reports) Regulation (L.N. 11 of 2013) (as amended by Resolution of the Legislative Council (L.N. 48 of 2013) […]

Stamp Duty on Transfer of Shares and Capital Duty on Increase of Capital of a Hong Kong Company

Stamp Duty on Transfer of Shares of a Hong Kong Company The transfer of shares in a Hong Kong company (whether private or publicly quoted) must be stamped. The rate of duty is 0.1% payable by each of the purchaser and seller involved in a transaction, giving an effective rate of 0.2%. Duty is charged on the sales consideration or the fair market value, whichever is the higher. In evaluating the fair market value, the Stamp Duty Office will normally accept the net asset value shown by the company’s audited accounts, subject to an upward adjustment to reflect a higher value for land and buildings than that shown in the accounts, where appropriate. No Stamp Duty is charged in the case of transfers of shares or immovable properties within a group of companies, where both parties are under 90% (or more) common ownership. Capital Duty on Increase of Authorized Capital […]

Registration of Sole Proprietorship Business in Hong Kong

When you engage Kaizen to register your sole proprietorship business, please follow the procedures described below. 1. You place an order with Kaizen for the registration of sole proprietorship with payment of fees; 2. You provide to Kaizen the following information by email or fax:  Proposed name of the sole proprietorship;  Name, residential address and identity card number of the owner (sole proprietor);  Detailed business address of the proposed sole proprietorship business; 3. Kaizen fill out and deliver the registration application form to you; 4. You sign the application form and return it to Kaizen together with a photocopy of the sole proprietor’s identity card by post; 5. Kaizen arranges to submit the registration application form to the Business Registration Office and at the same time, make the payment of business registration fee; 6. Kaizen collects the Business Registration Certificate and forward it to you. Registration Costs […]

Registration of Representative Office in Hong Kong

A foreign company may establish a representative office in Hong Kong to undertake promotional and liaison activities on behalf of its parent company. The office, however, directly or on behalf of its parent company, must not be engaged in business, conclude contracts, provide consultancy for a fee, undertake transshipment of goods, or open or negotiate any letters of credit. Foreign companies keen on exploring the viability of doing business in Hong Kong or interested in using Hong Kong as a launching pad into the Asia Pacific, may wish to set up a Representative Office (RO). Registration of a Representative Office should be considered when a foreign company wants to test the business environment in Hong Kong before making investment decisions. However foreign companies should be aware that incorporation of legal corporate entities with the Companies Registry (Registrar of Companies) will be necessary to maintain their operations in Hong Kong in […]