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3 Tips for a Better Tax Filing & Planning Strategy

Author Renee YangRenee Yang

5 min read
Tax Advice

Making sure your accounting paperwork is in order is important as you file your report profits tax to the Inland Revenue Department (IRD). You wouldn’t want to owe the Inland Revenue Department any tax as that will not look good for your business

3 Tips for a Better Tax Filing & Planning Strategy

It’s that time of the year again - a time of planning your business and strategizing your finances for the year ahead. Making sure your accounting paperwork is in order is important as you file your report profits tax to the Inland Revenue Department (IRD). You wouldn’t want to owe the Inland Revenue Department any tax as that will not look good for your business.

To plan your taxes effectively, we will be sharing three important tax filing and planning strategies for you to remember.

What Is Tax Filing?

When your company has carried your business in Hong Kong for more than a year, the Inland Revenue Department will issue three types of annual tax returns. They are:

  1. Employer’s return
  2. Profits tax return
  3. Individual tax return

Each of these returns has a different set of compliances. As business owners, you will need to file these tax returns and know what these compliances are.

What Is Tax Planning?

Tax planning refers to a process of evaluating your company finances from a tax perspective. You do this to make sure that you are paying the most efficient tax as possible.

As you begin tax planning for the new financial year, it gives you the ability to manage your income and expenditure. With this overview, it will help your company to save money, which you may use for more important areas like growing your business.

What Are the 3 Tax Filing and Planning Strategies?

1. Be Familiar With Hong Kong’s Tax Compliance Laws

Before you begin your tax planning, you need to be familiar with Hong Kong’s tax regime. The Inland Revenue Department (IRD) usually profits tax returns to taxpayers from the first working day of April each year.

As of 1 April 2018, the government introduced a newly proposed two-tier profits tax system. In this new system, the profit tax rate is reduced from 16.5% to 8.25%. This is great for new start-ups and small companies, as the rate is extremely low in the global market.

Despite its low tax rate and rigorous tax regime, there are different types of tax return forms to file and a set of laws to comply with.

Keith’s business has recently changed from a partnership to a sole proprietorship in the middle of the financial year. When it is time to file profit tax returns, there are many forms to look at and each of them has different compliances. Though he can file Form BIR60 for a sole proprietorship, he has to report his profit & loss statement in the BIR52 for partnership as the change takes place during the financial year.

The IRD will send you the relevant tax return form when the tax filing time comes. It would be good to get a professional agency to manage your tax return forms if you are not familiar with the tax administration. Our accountants will be able to help you with figuring this out. Simply drop us a chat at a time convenient for you, be it on weekends or at night.

2. Be Accurate and Effective

Business owners often have the idea that doing basic accounting is sufficient for the company. This is a misconception. Now the thing is, companies are required to submit their accounts statement and audit reports to the government every year. So, doing basic accounting is not feasible. Without proper accounting records, it is difficult to implement a tax strategy for your company, as the reporting might be inaccurate.

Mr Lam improves his accounts statement every year by checking his income and expenditure closely. He also makes sure that he arranges his accounts and audit reports properly so that he can review his financial year for the following year.

With a proper set of accounts and financial reports, you can strategise your tax effectively and monitor your flow of expenses and income. Likewise, tax strategies help your company to maximise savings and reduce any unnecessary cost. Aside from just polishing your financial statement, getting a time frame right plays a big part in your strategy. You wouldn’t want to submit your returns form late. So, planning is really important.

3. Find Out How To Get Exemptions or Reduce Taxes Legally

Cost savings are crucial for any businesses. Most companies are looking at reducing their tax, as this is the component that could build or destroy a company. As companies prefer to enjoy tax exemptions, how should they achieve it without doing it illegally? There are many ways to look at it.

One of them is the nature of the business. Companies that are operating their businesses outside of Hong Kong can qualify for exemption from tax. This is considered as offshore companies. We can help you out and open an offshore company for you. To enjoy tax exemptions, your business must not have any business presence in Hong Kong and the director of the company has to be a non-resident. If you fit into those criteria, your company has the eligibility to claim for offshore status. Once you are qualified, you do not have to pay 16.5%  profits tax.

Mr Fong is a Malaysian businessman who lives in Hong Kong. He decides to operate his clothing business in Vietnam. As his company does not have any presence in Hong Kong or serve Hong Kong residents, he is qualified for claiming offshore status. If the claim was approved by the tax authority, he doesn’t have to pay corporate tax.

However, you will need to prove that this income is not liable to the profits tax, so do remember to keep your supporting documents if the authorities request for them.

Why Do You Do Tax Planning?

After going through these tax strategies, it’s hard not to think why should my small company bother about all these. Tax planning helps you to streamline your existing business resources and gives you an idea about the cash flow. It’s more than just submitting your tax returns home during the filing period. It allows you to form accurate information.

Likewise, IRD implements new laws and changing allowances every other year. So it is good to review these changes. As a business owner, you wouldn’t want to submit the wrong form or inaccurate information to the authorities.

Summing Up

Tax filing and strategies are part of a business journey in Hong Kong. Getting familiarise with the different types of return forms and compliance gives you a head start for the new financial year. It even helps you to make the right decisions so that you wouldn’t be penalised. To estimate the effective tax rates for your company, you may use a corporate tax calculator to get an estimated figure.

However, if you are worried about submitting wrong information or not sure where to start, don’t worry! We have professional Accounting as well as Company Secretarial services in Hong Kong. Osome experts are willing to advise you whenever it's convenient.

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