Evidence of tax-free status

Proof of tax-free status for a company registered in Hong Kong is a widely demanded service among UGL customers. Our specialists are well acquainted with the requirements of the Hong Kong tax authorities, and the procedure for proving tax-free status is included in the list of services that are on a par with the preparation of financial statements and audits.

One of the main taxes that Hong Kong resident companies must pay is income tax, which currently stands at 16.5%. However, this tax only applies to profits earned by companies in Hong Kong. Companies that have received income from transactions in foreign countries and from partners registered in other jurisdictions are entitled to exemption from income tax, but this tax-free status must be proved.

The tax-free status of the company is determined by the results of the receipt by the Hong Kong Tax Department of the audit report of the company. The tax-free status of a company registered in Hong Kong is determined on the basis of which activities are carried out in Hong Kong and which are outside.

When filing tax reports, the company must either indicate in it and pay income tax (16.5%), or declare exemption from income tax due to the fact that the source of income is of foreign origin. If the information contained in the submitted financial statements is sufficient for the tax authority to determine the tax-free status of the company, the latter accepts a statement of the foreign origin of the company’s income and exempts the company from paying taxes. If the information provided in the reports is insufficient, the Tax Department sends a request to the company for additional information confirming the origin of the income.

As a rule, after submitting an audit report, the Hong Kong Tax Department (HK IRD) makes a selective check of the company’s reporting documents and can send chain letters to the company with a request to prove that the data reflected in the audit report are correct and that the profit is major transactions was not earned by a company in Hong Kong. The list of questions can be quite large and include such details as the provision of correspondence on the conclusion of a transaction.

How to get tax-free status?

The justification of the tax-free status of the company is carried out by submitting a written justification to the Tax Department, as well as documents reflecting the business operations carried out in the reporting year.

UGL specialists are working to prove the tax-free status in accordance with the following algorithm of work:

1. Receive a letter from Hong Kong Tax Department
2. Analysis of the issues of the Tax Department
3. Request for primary documentation from the client
4. Analysis of data reflected in previous audit reports of the company
5. Analysis of data received from the client
6. Preparation and writing of answers to the questions of the Tax Department, including the provision of primary documentation.

What you need to pay attention to:

• ensuring proper accounting
• proper preparation of the primary documentation of the enterprise
• storage of primary documentation for 3 years after completion of transactions.

To justify the company’s tax-free status, the Hong Kong Tax Department requests documents on the company’s largest operations carried out in the reporting period, confirming the foreign origin of the company’s profit (contracts, invoices, business correspondence, shipping documents, including bill of lading).

The decision of the Hong Kong tax authority depends on the correctness and quality of registration of primary documents.

After providing the necessary data to the Tax Department, a confirmation of Tax-free status is issued or a repeated notification is sent with a request to provide additional materials and reporting documents. By carrying out work on accounting services and preparing audit reports on a daily basis, the specialists of our company UGL can save you from this “headache” and get approval on the Tax-free status from the very first attempt.

Since 2005, UGL Corporation Limited has been successfully providing clients from the Russian Federation and CIS countries with services to prove tax-free status for companies registered in Hong Kong. High standards of work and efficient solution of the tasks set were appreciated by more than 200 clients who, thanks to the competent work of our specialists, were able to optimize the taxation of their business in Hong Kong.