For mainland enterprises or individuals with Hong Kong companies, it used to be very common for Hong Kong companies to declare zero. However, with the significant acceleration of Hong Kong's accession to the Common Reporting Standard (CRS), Hong Kong companies continue to declare zero even if they have actual operations, and the financial risks they face are increasing. Since Hong Kong officially started the automatic exchange of financial account information with 74 countries and regions, including Chinese Mainland, this also means that the risk of Hong Kong companies having zero declaration has been greatly increased. Mainland China is listed on the Hong Kong tax jurisdiction list, and the Hong Kong Inland Revenue Department is gradually investigating enterprises that have actual operations but still have zero declarations. According to Hongyuan International Consulting, there are already many companies whose Hong Kong company accounts have been frozen by the Hong Kong Inland Revenue Department due to illegal zero declaration, and they are required to make up for taxes and fines.

How can Hong Kong companies avoid risks by consistently reporting zero?

At present, there are still many Hong Kong companies that disregard the legal requirements of Hong Kong and make zero declarations for a long time. Hongyuan International Consulting reminds companies and individuals who own Hong Kong companies to confirm whether they meet the conditions for zero declaration of Hong Kong companies. Only those who meet certain conditions can proceed with zero declaration. Firstly, Hongyuan International Consulting will take you through the conditions for zero declaration of Hong Kong companies:

1. Have not purchased any properties in Hong Kong;

2. No bank account or accounting records have been opened, and there are no records of monthly bank statements;

3. Not engaged in any business operations;

4. There are no employees in Hong Kong;

5. No permission or authorization to use patent or trademark related materials;

6. No purchase or sales relationship with Hong Kong merchants;

7. There are no other profits from or generated in Hong Kong;

It should be emphasized here that Hong Kong companies must meet the above conditions simultaneously in order to make zero declarations. If enterprises and individuals find that they do not meet any of the above requirements, they must stop zero declaration and prevent the certain risks brought by long-term zero declaration, such as being frozen by the Hong Kong Inland Revenue Department's Hong Kong company account and required to make up for tax and accounting, plus a three fold fine. Those with serious circumstances will be sentenced to three years in prison.

If a company does not meet the zero declaration criteria and still makes a zero declaration, it must solve the problem through the following two methods to avoid risks:

1. Conduct a supplementary audit to fill in the missing audit reports from previous years. Hong Kong company tax retention is 7 years, and it needs to be supplemented from the year of registration, which means that the enterprise needs to supplement the accounts for all accounting years from the registration date to the present. Accountants need to issue audit reports based on accounting materials and other vouchers in order to pass the audit of the tax bureau.

2. The advantage of deregistering an existing Hong Kong company with zero declaration and then re registering the Hong Kong company is that the cost will be lower than that of supplementary accounting audits. The cancellation period is 6-8 months, and the cancellation documents need to be submitted to the Hong Kong Inland Revenue Department first. The Hong Kong Inland Revenue Department's review time is 2-3 months. If approved, a notice of no objection will be issued, and if not approved, it will be rejected.

1. Can enhance the company's visibility and reputation: Many foreign businesses require their partners to provide past accounting and audit records in order to understand the company's background and strength, and consider whether to cooperate or provide goods;

2. Losses in normal audits can be continuously offset against next year's profits: After Hong Kong companies handle accounting and tax reporting, they can be recognized as losses by the Hong Kong Inland Revenue Department and can indefinitely offset future profits. Hongyuan International Consulting reminds Hong Kong companies that if they apply for offshore exemption, the losses of previous years cannot make up for the profits of future years;

3. Bank financing and listing: Hong Kong companies conduct annual accounting audits, which is beneficial for opening letters of credit. When issuing a letter of credit to a customer, the bank will review the customer's audit reports over the years and decide on the credit limit based on this. The company needs to have "audit reports" for three consecutive years, all of which are profitable, which is beneficial for credit review by Hong Kong banks. Through bank financing loans, it can help enterprises activate their funds. Especially if the company wants to develop its Hong Kong listing in the later stage, a formal and reasonable tax planning is very important;

4. Participating in exhibitions in Hong Kong, if there are audit reports and tax payment certificates, one can apply for a 50% discount on booth fees provided by the Hong Kong Trade Development Council;

Currently, the renewal and entry into Tmall Global require a tax payment certificate provided by a Hong Kong company, which is the result of normal tax reporting in Hong Kong;

If the business owner applies for Hong Kong immigration in the later stage, normal tax reporting is also a necessary condition for the company;

To achieve long-term and stable development, compliant operation is a prerequisite for enterprises. Hongyuan International Consulting recommends that Hong Kong companies that have been filing zero returns for a long time should plan and conduct supplementary audits as soon as possible through professional secretarial services to avoid serious consequences caused by the tax bureau's repeated spot checks. Hongyuan International Consulting has dozens of accountants in Hong Kong and Shenzhen providing audit consulting services for Hong Kong companies.

To learn more: http://www.hyintern.com/