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Audit exemption for company with no revenues or profit? - Unique situation -

  1. #1

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    Audit exemption for company with no revenues or profit? - Unique situation -

    Hello All -

    I need some advice, because I am getting conflicting information about auditing requirements for local company - and we are indeed in a un pique situation.

    Background -
    -We are a local private company with 3 shareholders
    -We are the purchasing company for a larger US company - but not a subsidiary (totally separate entity but some common shareholders)
    -We DO NOT have any sales, revenues or profits
    -All funds to maintain office and pay employees and other bills is wired in from the USA.
    -the employees basically help us to purchase parts in HJK, China, TW and elsewhere in the region.
    -we DO NOT sell anything.
    -expenses are only salaries, rent, phone, internet etc.
    -we DO NOT do any trading whatsoever.

    In the past I was told over and over again all HK companies need an audit - and thus we were paying $13K for a reprint of our bank statements on nice paper, because there is no business activity. One of our employees with an accounting background talked to IRD and they told her we would be exempt - until we start trading (anything) or have some profit, sales etc.

    She is gone and now the accountants want to start this crap all over again - they are hounding me that I MUST have an AUDIT and a PROFITS and LOSS statement etc...I am confused, because an audit for a company like ours real does not make sense...we have no revenues, no profits, no losses etc. Everything, such as business registration etc is current.

    Any advice, ideas or anything?

    Thanks in advance!!


  2. #2

    Join Date
    Jan 2010
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    Quote Originally Posted by packy_crusher
    Hello All -

    I need some advice, because I am getting conflicting information about auditing requirements for local company - and we are indeed in a un pique situation.

    Background -
    -We are a local private company with 3 shareholders
    -We are the purchasing company for a larger US company - but not a subsidiary (totally separate entity but some common shareholders)
    -We DO NOT have any sales, revenues or profits
    -All funds to maintain office and pay employees and other bills is wired in from the USA.
    -the employees basically help us to purchase parts in HJK, China, TW and elsewhere in the region.
    -we DO NOT sell anything.
    -expenses are only salaries, rent, phone, internet etc.
    -we DO NOT do any trading whatsoever.

    In the past I was told over and over again all HK companies need an audit - and thus we were paying $13K for a reprint of our bank statements on nice paper, because there is no business activity. One of our employees with an accounting background talked to IRD and they told her we would be exempt - until we start trading (anything) or have some profit, sales etc.

    She is gone and now the accountants want to start this crap all over again - they are hounding me that I MUST have an AUDIT and a PROFITS and LOSS statement etc...I am confused, because an audit for a company like ours real does not make sense...we have no revenues, no profits, no losses etc. Everything, such as business registration etc is current.

    Any advice, ideas or anything?

    Thanks in advance!!
    You obviously have business activity (salaries, rent etc) so you need to file a tax return showing the loss and do an audit report. If you have losses the IRD will send you a letter informing you that you don't have to submit another tax return until you are making a profit. Unless you have that letter you must file a return.
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  3. #3

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    -All funds to maintain office and pay employees and other bills is wired in from the USA.
    Like mrgoodkat said, you have transactions and activities. These need to be audited to ensure that .... you have no profit.

    I am not sure how IRD told you that no audit was required - the only time we've seen this is for a dormant company with no activity (i.e. NO cash in / out / no transactions / no salaries etc)
    Have a GeoExpat related problem - please create a support ticket.

  4. #4

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    Reading the IRD page:

    Best you take wander down to the IRD building:

    Taxpayer may also call upon the officers at the Central Enquiry Counter on the 1st Floor of Revenue Tower who will explain what is required, or direct him/her to see the Assessor handling his/her file. No charges are made for any services rendered by officers of the Department.
    In Person

    Enquiry over counter can be made at Opening hours
    Central Enquiry Counter
    Monday to Friday
    1/F, Revenue Tower

    8:15 am to 5:30 pm
    5 Gloucester Road, Wan Chai, Hong Kong

    Have a GeoExpat related problem - please create a support ticket.

  5. #5

    Join Date
    Jun 2016
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    300

    If you are running anything through company accounts, then technically you should have financials. I think your issue is you balk at the price for audited financials but that fee estimate include actually compiling the financials. Maybe you should hire a book keeper of some other low level accountant to compile what you state are very simple financials then get a fee estimate for the audit -- which should be very easy. OR try QuickBooks and compile it yourself given the simplicity of your operations then negotiate with a range of firms for an audit fee estimate.


  6. #6

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    Nov 2007
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    Yes all HK companies that are active require an audit as has already been mentioned. I suspect that misunderstanding with the IRD is that your staff member was told no PTR has to be filed if the Company shows losses in the previous year. An exemption letter will be received for that.

    13K is actually fairly reasonable for an audit in HK.

    The ordinance is pretty clear on this I don't know what's confusing you.

    https://www.cr.gov.hk/en/companies_o...t-audit.htm#11

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  7. #7

    Join Date
    May 2008
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    446

    Based on what you state you have a limited company with shareholders and not a firm with partners nor a branch office of the US company
    You operate as the purchasing office for a US company in return for payment
    You need to make a salaries return if you are paid
    You have employees
    You need to have an MPF account and for each of the employees
    Your company is not dormant but is operational
    You need to file an annual return
    You need to file audited accounts


    Contact Alexandra at
    [email protected]
    (accountants)

    You need to be registered under the SCR (equivalent of the California Fictitous Names Index)
    https://www.cr.gov.hk/en/scr/faq.htm

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  8. #8

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    When we did the buyout of our company, we had never made a profit and thus never filed our accounts. We got fined for this. So - you need to do something.

    However, (and because I have been looking into this recently) the HK Companies act has recently enacted some new rules about transfer pricing. I would not surprise me if you are caught by this. You should get some proper accounting advice, because I suspect that what you are doing is avoiding the transfer price (the "other company" should be paying you for the "service" you are providing - which may be different than paying your costs). If you get caught by the transfer pricing rules, you will find you are making profits (or should be, if the transfer pricing rules are applied correctly). Let me see if I can find you some links. I did have a thread on this a few weeks back.

    http://www.ey.com/gl/en/services/tax...rofit-shifting

    https://www.ird.gov.hk/eng/pdf/e_dipn46.pdf

    http://app1.hkicpa.org.hk/APLUS/1005/p44-46.pdf

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  9. #9

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    Yes--- we did that and IRD did provide such a letter....and we will never make a profit....so do we still need an audit every year?


  10. #10

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    hmmm...ok...I am going to look into this further with the advice you all provided. Thank you!


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