Audit of trading enterprises in Hong Kong

In the auditing business of Hong Kong companies, trading enterprises are very common. The business model of trading enterprises is relatively simple. Generally, upon receipt of customer orders, they place orders directly from suppliers and deliver goods directly to customers. Because the business model is clear, it is relatively easy for trading enterprises to prepare data during auditing.

Details to be paid attention to in the audit of trading enterprises
  • First: Provide statements for all bank accounts in the company nameIncluding savings accounts and investment accounts, many banks in Hong Kong generally do not issue statements in monthly terms, so they need to provide statements with audit deadlines.
  • Second: provide sales contracts, sales and purchase invoices, bills of lading, warehouse receipts, logistics documents, waybills and insurance policiesOnly a proforma invoice is required, which contains important information such as the name, address and details of the goods of both companies. If the freight is issued in the same invoice with the goods, it will constitute the cost of the goods. If the freight is issued separately, the item "freight" will be presented separately in the audit report. This may have an impact on the calculation of gross profit on sales.
  • Third: Provide a detailed list of notes receivable and payables, and comb notes receivable and payablesEach bank has different standards for L/C settlement For example, the bank of a client of our company needs to deposit a deposit in the opening of the letter of credit before the bank can issue the letter of credit. Meanwhile, the client also needs to receive the letter of credit from other companies, so the bank will deduct the balance after receiving the letter of credit, and then deposit it into the customer's account or deduct it from the customer's account when settling the letter of credit. At this time, if the enterprise does not record the payment and expenditure of the letter of credit in detail, it only confirms the payment and payment according to the bank deduction and collection, which will result in the payment and payment. However, because the bank makes corresponding deduction when the letter of credit is entered into the account, the current accounts do not match. It is suggested that the customer record the flow of the letter of credit through the registration standing book. If the deposit of L/C deposit should be well recorded, according to the bank L/C settlement list; For a certain trade purchase, the sales and L/C deposit corresponding to the received L/C amount shall be deducted, and the difference shall be deposited into the bank account or deducted from the account.
  • Fourth: commission payment informationCommodity trading businesses generally involve paying commission. If paying company commission, commission contract, commission invoice, company name and address should be provided. If individual commission is paid, commission contract, commission invoice, personal ID card or passport number should be provided. Hong Kong Tax Bureau may inquire about the large commission later, so it is necessary to keep the relevant information and make reasonable explanations.
  • Fifth: personnel salary, director compensationFor personnel wage, it must be the salary of the personnel who have signed the employment contract with the company (employees) or have not signed the employment contract with the company but have been formally appointed by the company (such as internal and external directors), with the payroll signed by the personnel, the ID card or passport number of the personnel, and the salary is actually paid and reasonable. If the enterprise only withdraws the wages of the current year, but does not pay them later, it is better not to enter the account. If the wages are not paid after entering the account, resulting in arrears of wages, this is in violation of the labor law, the wages need to be adjusted out, and shall not be deducted before tax.
In Hong Kong, the geographical concept has always been the basis of profit taxation.
In other words, only profits generated in or derived from Hong Kong are taxable in Hong Kong.
This advantage is also the reason why many enterprises choose to set up in Hong Kong.
Examples of audit of Hong Kong trading enterprises
  • Example 1In the audit, many enterprises are also asked the most about how to determine the profits generated or derived from Hong Kong. There is no simple general legal rule for this issue. However, the purchase and sale are important factors for the trading profits of a trading enterprise. The Inland Revenue Department will take into account the following factors:The taxpayer is engaged in the activities to earn the relevant profits and the place where the taxpayer is engaged in the activities. For example, how are goods procured and stored? How will the sales be solicited? How is the order processed? How will the goods be shipped? How to arrange financing? How to pay?
  • Example 2:All the operations of a trading enterprise are not obtained from Hong Kong as mentioned above. A series of activities such as purchasing, signing contracts, order processing, shipping and payment of a trade from familiar suppliers have nothing to do with Hong Kong, as well as related activities such as how to know and sign contracts with customers, how to deal with sales orders, where goods are shipped and payment have nothing to do with Hong Kong. The profits from that trade would not originate in Hong Kong and would not be taxable there. If one party is involved in operating in Hong Kong, the entire trade profit is also deemed to have originated in Hong Kong. So the customer needs to keep the maximum this year5to10Trade documents (purchase and sales contracts, invoices, customs clearance documents, etc.) and a clear preparation of business operations in response to enquiries from the Inland Revenue Department.
As an audit service institution in Hong Kong, Lianze will remind clients to distinguish between onshore and offshore trade in advance. It is necessary to pay special attention to the fact that the difference between onshore and offshore trade profits should not be too large. If the difference is too large, the tax bureau will think that it is deliberately transferring onshore profits to evade tax. For example, some clients in the audit, the onshore trade profit is too much lower than the offshore profit, but can not give a reasonable explanation. This is very easy to attract the attention of the tax office. To sum up, there are still a lot of knowledge and details worth further investigation in the aspect of corporate auditing in Hong Kong. Different industries have different doorways. Only by clearly mastering and applying relevant policies can the company reasonably reduce tax costs and avoid tax risks.
HUANZE focus on Hong Kong company audit accounting tax17years
Experience in auditing Hong Kong companies in various industries,
Has served many private enterprises, listed companies, multinational groups and state-owned enterprises,
Can be combined with the industry customer situation, tailored to overseas company service solutions,
For enterprises to avoid overseas risks, to obtain more corporate interests.

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