Standards given by Inland Revenue Ordinance to keep the Business Records for Payment of Tax for a company incorporation HK


In this following blog we will discuss the standards of Inland Revenue Ordinance for keeping the business records and rental records under Section 51 (c) of Hong Kong tax law. Then we will explore the obligations of employer to furnish his return, notify beginning of employment of an employee, termination of employment of an employee, departure from Hong Kong and retaining the money.

Firstly starting with an example, Mr. Lee owned a Hong Kong company incorporation. It was planned by him to cease his business on 30 June 2016. He after ceasing his business left the Hong Kong. It was required by Mr. Lee to inform the CIR department of his expected date of departure in writing on before 31 May 2016.

Notification for Change of Address under Section 51 (8)

Each and every person that is assessable to tax and who changes its address is required to inform CIR department in writing under Section 51 (8) of Hong Kong tax law about such change within one month.

Keeping of Record of Business under Section 51 (C)

It is required by every person who is either a businessman or carries another profession in Hong Kong to keep the necessary record in Chinese and English. This is for the purpose of enabling assessable profits of such profession or business to be ascertained readily.

Under Section 51 (c) of Hong Kong tax law, for the purpose of ‘record’ means:

  • Invoices, vouchers, receipts, bank statements and such other documents as are mandatory to verify in the books of account these entries.
  • Book of accounts (whether readable or in a computer or otherwise) payments, recording, receipts, or expenditure or income.

The records that are required to be retained and kept include:   

  • A record for all day to day entries of all sums of money collected and consumed by the person in relation to that profession, trade or business;
  • A record for the liabilities and assets of the person carrying on the business, profession or trade; and
  • For a business that deals in goods:
  • A record for all sales and purchases (other than that were sold in the course of retail trade for cash), buyers, sellers showing the goods in required details to enable the CIR to verify the value and amount of goods readily and also the identities of buyers and sellers
  • All statements according to above; and
  • List of stock for trading stock (including values and quantities) at the end of period of accounting and all the records of stocktaking. These are the records from which such list of stock was prepared.
  • For a services provider business, records of services that was provided in required details in order to enable the CIR to verify the above noted entries readily.

These records must be kept after related transaction has completed for a period not less than 7 years. There is no requirement to keep such records if:

  • The corporation has been disestablished if corporation is concerned.
  • It is specified by CIR that such record is required to be preserved.

The sanction for failing to follow Section 51 (c) of Hong Kong tax law is a fine of amount ($ 100,000) at level 6. This would be not applicable if law is not followed due to some reasonable excuses. Other than that sanction it may be ordered by the court that the person who has been declared to guilty to perform that act i.e. comply with Section 51 (c) of Hong Kong tax law within a specified time. If a person gets failed to follow with the orders of court it will result in a fine at level 6 of amount ($ 100,000).

Summary of Responsibilities of Taxpayer

Taxpayer’s responsibilities

Time limit

Inland Revenue Ordinance reference

Obligatory for taxpayer to inform CIR of his being allowable to tax

Within 4 months from the completion of that assessment year

Section 51 (2) of Hong Kong tax law

Obligatory for taxpayer to inform CIR of the termination of source of income

Within 1 month of termination

Section 51 (6) of Hong Kong tax law

Obligatory for taxpayer to inform CIR if he is about to leave Hong Kong to work for offshore incorporations HK limited (other than leaving it for business trips)

1 month before departure date

Section 51 (7) of Hong Kong tax law

Obligatory for taxpayer to inform CIR of any change in the address of residence

Within 1 month of change

Section 51 (8) of Hong Kong tax law

Obligatory for taxpayer to keep business records

No fewer than 7 years

Section 51 (c) of Hong Kong tax law

Obligatory for taxpayer to keep rent records

No fewer than 7 years

Section 51 (d) of Hong Kong tax law

 

Obligations of Employer

Obligation to assemble return of employer under Section 52 (2)

An employer having sole proprietorship HK on receiving the employer’s return that is issued by the assessor (Form 56 A and Form 56 B) is required to assemble that return under Section (s 52 (2)) of Hong Kong tax law, within the same time stated in return, giving;

  • Under Section 52 (2) b of Hong Kong tax law, any other person named by assessor and employed by him
  • Personal particulars, and all amount of pay of all persons employed by that employer in receipt of pay, increment of a minimum figure that was fixed by assessor under Section 52 (2) a of Hong Kong tax law.

If local persons (other than corporation) other than employees (for example a subcontractor) has paid with remuneration by an employer, then it is their duty to file Form 56 M and Form 56 A together.

Obligation to notify Beginning of Employment under Section 52 (4)

A person that begins to employ an individual in Hong Kong who is:

  • A married person; or
  • Likely to be assessable to tax on salaries

Is required to give written notice (Form 56 E) under Section 52 (4) of Hong Kong tax law, to CIR no more than 3 months after date of beginning of such employment.

Obligation to notify Termination of Employment under Section 52 (5)

It is required by an employee to notify CIR in writing (Form 56 F) of termination of employment of an employee in Hong Kong no more than 1 month before termination.

Now we will discuss an example to understand such situation, there was a guy named as Mr. Fong working for an employer having Hong Kong company incorporation. A notice of resignation was given by Mr. Fong to his employer on 28 January 2016. His employer was an owner of a company in Hong Kong named as X Ltd. It was stated by Mr. Fong to his employer that he would resign as from 1 March 2016. During that assessment year 2015 to 16 Mr. Fong earned an amount of $ 30,000 per month and was likely to be allowable to salaries tax. It was required by X Ltd. to inform CIR under Section 52 (5) of Hong Kong tax law, in writing no later than 1 February 2016 about expected date of termination of employment of Mr. Fong. If notice of resignation had given by Mr. Fong to X Ltd. later than 1 February 2016 so that X Ltd. was not able to inform the CIR earlier, it is probably that shorter notice would have accepted by CIR given that X Ltd. had acted punctually. It is not required by a person to give a notice of termination to the CIR under Section 52 (8) of Hong Kong tax law, if an employer has sensible grounds to believe that neither the employee that is married nor his / her partner or, are allowable to tax on salaries.

Obligation to notify Departure from Hong Kong under Section 52 (6)

The employer of a taxpayer rendering services for company incorporation HK who is:

  • About to departure from Hong Kong for a period more than 1 month.
  • Assessable to salaries tax.

Is required to given notice in written notice (Form 56G) to CIR under Section 52(6) of Hong Kong tax law, of the expected date of leaving of that person, no after one month before the expected date of leaving.

The Section 52 (6) of Hong Kong tax law, is not applicable in the case where it is required by an individual in the path of his employment to leave Hong Kong at regular intervals under Section 52 (6) proviso (b).

Now we will have a look on an example. A person named as Mr. Cheung was working in a company named as Y Ltd. It was told by him on 20 January 2015, to his company that he would fly permanently to Canada on 15 March 2016 to render his services to offshore incorporations HK limited. The salaries tax for the assessment year 2015 to 16 was due on the Mr. Cheung. It was required by Y Ltd. to give notice to CIR under Section 52 (6) of Hong Kong tax law not later than 15 February 2016. That is 1 month before the expected date of departure of Mr. Cheung from Hong Kong.

Obligation to keep Money under Section 52 (7)

If an employee is about to leave Hong Kong and he has terminated or about to terminate the employment, it is required by CIR, in addition to give notice of expected departure under Section 52 (6) of Hong Kong tax law, to stop all payments to the employee for one month from the date on which notice was given by employer under Section 52 (6). If written assent is given by employee to CIR, then payment may be rescued before 1 month time limit to the employee.    

Now we will discuss an example to clearly understand such scenario, in the example that was discussed above if notice had given to CIR by Y Ltd. under Section 52 (6) of Hong Kong tax law on 15 February 2016, it would not be allowed to Y Ltd. to make any worth of money or payment to, or for the advantage of, Mr. Cheung during the interval from 15 February 2016 to 14 March 2016 unless it had received by Y Ltd. a letter of release from CIR within that period.

Summary of Obligations of Employer

Obligations of employer 

Time limit

Inland Revenue Ordinance reference

Returns of pay of employees including directors

Time that is specified in returns

Section 52 (2) of Hong Kong tax law

Information about all new employees that are responsible or likely to be responsible to pay salaries tax

Within the month of beginning of employment

Section 52 (4) of Hong Kong tax law

Employee’s notification who are about to terminate to be employed

1 month before termination

Section 52 (5) of Hong Kong tax law

Notification of employees who are about to departure from Hong Kong for not less than 1 month (other than recurrent business trips)

1 month before leaving of employee

Section 52 (6) of Hong Kong tax law

Confinement of money that is payable to employee who will terminate employment and is about to departure from Hong Kong for not less than 1 month

1 month from the date of notice of Section 52 (6) of Hong Kong tax law

Section 52 (7) of Hong Kong tax law

 

Person Accountable For Compliance

Incapable person:

It is the responsibility of the trustee of an incapable person for doing all acts that are required by or under Inland Revenue Ordinance, to be done by that incapable person under Section 53.

The meanings of ‘Incapacitated person’ are any lunatic, minor person of unsound mind or idiot.

Any guardian, manager, curator, trustee or other person that have direction, management or contract of any property on the part of any person is included in the word ‘Trustee’. An executor is not included in the trustee.

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