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.
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.