Nihil Return PTR for HK companies trading offshore

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  1. #1

    Join Date
    Mar 2008
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    Nihil Return PTR for HK companies trading offshore

    Hi

    There is a debate on wether a HK company doing only offshore business should return anything more than a "Nihil return " profit tax return.

    Many CPAs advise proper audit (which is charged accordingly by the CPAs ) whereas others claim the Nihil Return is enough. It looks dodgy yet as I've seen those latter CPAs beeing recommended by InvestHK for several years.

    Upon investigating further I heard it's better to do so that the HK company -dealing offshore and not submitted to profit tax - never has filed anything else than Nihil Return in the past and that it's possible the IRD will contact them for a tax audit - in which case a proper accounting needs to be provided and the issue is solved as long as the HK company can show it deserve the profit tax exemption dur to the offshore nature of its business.

    What is your experience on this issue ? Are those tax audit easy to deal with and frequent ?

    I'm wondering because communication issues with my present CPA have lead to 15months delays in PTRs and I'm wondering wether filing Nihil Returns for 2007/2008 and 2008/2009 or going through the audit. ( the former and first PTR was Nihil return btw)


  2. #2

    Join Date
    Mar 2010
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    HK companies are required by law to have annual audits. "Nil returns" are only accepted by the IRD (on discretionary basis) for those newly incorporated businesses that have yet to start business.

    If your company has been trading for several years, you would be required to file audited financial statements to the IRD. They may accept your tax return temporarily but would query your tax position every few years.

    The final consideration is that if the IRD decides that your company does not have offshore tax status and that you had failed to file accounts by claiming "no business" then you (your company) would be subject to heavy tax penalties.


  3. #3

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    Mar 2008
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    Quote Originally Posted by DarrenChan:
    They may accept your tax return temporarily but would query your tax position every few years.
    Thanks Darren for your reply !

    In the above do you mean they may accept the Nihil tax return temporarily, or even a delay of a couple of years in tax return ?

    Besides when the IRD wants to double check the situation of the company, is it an easy process where the accounts can be posted or mailed or does it require proper meeting with IRD officials ?

    My company business would easily be accepted as offshore as I don't even have a physical presence in HK except a registered adress which is no more than a postbox at a relative's adress.



    Lastly if my CPA files Nihil returns for the 2 last years and next year we decide to audit the accounts , will he need to audit them retroactively ? This question is because he filed Nihil returns a couple of years ago but I received recently an audit draft over the same period.

    Thanks again

  4. #4

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    Mar 2010
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    Yes, normally the IRD would accept tax returns "as is" and might not query your tax position immediately. They might wait a few more years before requesting for another return, by which time they might request full accounts to be submitted.

    If your accounts had already been prepared and audited, you can just submit them with the return and wait to be queried.

    Note : the IRD would ALWAYS query an offshore claim sooner or later, requesting for evidence to prove that the sales/purchase transactions were effected overseas.

    The CPA will be able to audit retroactively.


  5. #5

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    Mar 2008
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    Thanks Darren !

    It's nice to have extra opinion on that matter to help understand what's really going on regarding the PTR issue. Between CPAs that warn of prosecution if only Nihil Returns are filed (like the one I use) and others that try and sell a package from which they profit differently by claiming it's unnecessary to file anything else than Nihil returns it's difficult to make own's mind.

    Again for what it's worth some CPAs are advising the Nihil Return solution and have been recommended by InvestHK for years in my home country, so it must be a livable option. Yet upon enquiring further to them they reckon the IRD audit is quite possible (sometimes the eventuality is included in their package)


  6. #6

    I think a proper answer to your queries is that you need to file the tax return with nil amount of assessable income, not a nil return. Your report package should include a tax computation showing that you claim off shore income and hence those related expenses will not be deductible also. This is the proper way of claiming off shore income and not just filing a "Nil" return to the IRD. In fact, you will have to submit the tax return together with the audited financial statements. In the audited financial statement, the amount of revenue and profit will be showed. Of course, one will say that you do need to submit the audited financial statements if the gross receipts of the company earned is lesser than HK$2M, however, you will still need to fill in the financial data in the tax return.

    A company can only submit a "Nil" return if it has been dormant and earned no income during the year of assessment. So, a "Nil" return is definitely not a option for your case. You better be careful on that matters as the consequence could be serious if you have things wrong.


  7. #7

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    Mar 2008
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    Thanks Starco Pro . You are quite possibly right but than again CPAs backed by InvestHK do not audit their customers accounts unless prompted by an IRD investigation and apparently get away with it. Darren's experience seems to be in the same line.

    Anyway I'm more and more inclined to avoid those extra headaches, paperwork and expenses by closing the HK company and use only an offshore company with a HK bank account and HK adress on the invoices - but this option is obviously more tricky for the western customers filing those invoices in their accounting


  8. #8

    What about IRD opinion !

    Hello guys,

    I am in the same situation and I plan to go to discuss directly with IRD officers by making the NIL declaration by myself and dropping that file to the IRD office.

    Any advices, experience, feedback of IRD officers, are they nice, smooth or complicated ?

    Thanks for your feedbacks,

    Regards,

    Jacques