Profit Tax Return (BIR51) FAQ
Profit Tax Return - Corporate Body (BIR51) Common Mistakes & Notes
Q1: It is said that ‘If my company is not operating in the corresponding taxation year, I can do “Zero-Tax declaration”, and need not to complete any annual audits nor tax return filings.’ Does this statement stand?
According to the Companies Ordinance (Cap. 622), company director should be responsible in completing annual return report per annul. Any person who violates the ordinance shall be liable on conviction to a fine of $300,000 and imprisonment for 12 months. Therefore, companies under non-operating conditions are also required to complete all items on tax return report. For any items without amounts, please fill ‘0’. In order to fulfill law requirement, company directors should ensure the following three actions (collectively named ‘Financial Records & Report’) are completed annually:
Annual accounting report (If company is not operating, majority items stated on corresponding report should be company expenses, assets and loan…etc.) ;
Financial Settlement – review of financial status and performance, recorded in a report format, generally called Financial Report; and
Hire independent auditor to conduct annual audit for the company financial report, generally called Annual Audit
Q2: For company’s annual income not exceeding HKD 2,000,000, it would be considered as a small corporate body that only requires to submit Tax Return. Under such circumstance, is it true that the company is not required to conduct any financial settlement and annual audit?
The company is still required to complete annual accounting report, financial settlement and audit. Company should also keep good record of following documents as supporting in case of any future references.
Signed and verified 1) Financial Statement; 2) Balance Sheet; and 3) Auditor’s Report; and
Reports and Schedules for Assessable Profits Tax
It is also required to complete Profit Tax Return section 7.1.3 ‘State the date of the Auditor’s/Auditors’ Report’
Q3: My company has few transactions, low turnover rate, or in order to reduce operation cost, there is no specialist being responsible for supervising the financial status and record. Would the auditor be responsible for accounting, settlement, auditing and tax return at once?
For any auditor (including certified auditors), who responsible for completing financial report; conducting annual audit and taxation issues at once for particular company, would violate the ‘Code of Ethics for Professional Accountants’. Auditor should be independent from the accounting and settlement process, to ensure legitimacy in reviews and verification. To ensure its independence, accounting firm should guarantee separate staff or department are responsible for specific service for particular client.
To avoid confusion, sizable service provider would differentiate ‘Audit’ from ‘Accounting’, ‘Taxation’ and ‘Company Secretary’ companies, to provide independent service.
Q4: Is auditor being responsible in filling Tax Return for customer? For part 6 – Authorized Representative, should I fill in my auditor’s information?
The form should be filled by ‘Tax Representatives’.
‘Tax representative’ can be a ‘Practicing Accountant’ (who excluded from the auditing procedures), or taxation service provider or taxation advisory company.
For particular company empowered with related taxation knowledge, authorization of outside parties is not required. If so, please indicates ‘NA’.
Q5: Is it true that everyone could be the ‘Tax Representative’?
‘Tax Representative’ should have professional taxation knowledge and related working experience. In most circumstances, only experienced ‘accounting firm’ and sizable taxation advisory company would be capable for the position.
Q6: How should I evaluate if my tax representative is a professional service provider? Is ‘Practicing Accountant’ equals to ‘Professional Tax Representative’?
Most of the ‘Practicing Accountant’ focus on audit, financial accounting and listing duties, and have limited knowledge to tax return form filling and taxation theories. A ‘Professional Tax Representative’ should:
Has in depth knowledge on the Inland Revenue Department, accounting service, business environment and so as the society;
Being mastery in theories and practical operation on taxation disputes and investigation;
Being able to identify core taxation problems, and explain the case precisely and concisely; and
Having the complex and difficult situation well in hand and having it resolved
Q7: If I had been assessed as not liable to tax through notification form (IRC1812) from The Inland Revenue Department, is that equals to not requiring to return tax form nor conduct annual audit?
For business has not earnt any assessable profit, before deducting any loss brought forward, in usual situation, Inland revenue Department would raise notification form I.R.C. 1812 to indicate the particular corporate body need not to submit tax return form.
If the business continuous recorded loss and have not received any tax return form ever since then, the particular company may not do tax return. However, such arrangement does not exempt one’s liability to the Companies Ordinance nor any other regulations that requires annual audit for company balance. Therefore, company is still required to complete financial record and annual audit on time.
If the company gain taxable profit in a new annul, it should notify Inland Revenue Department actively or through tax representative within 4 months after the end of that annul. Any late return may be liable to fine and penalty.
Q8: While submitting tax return, a ‘Clean Audit Report’ is attached to the company audited financial report. Is it true that the corresponding data and content is a) considered as verified by auditor; and b) for any mistakes made on report that causes less tax submitted, auditor should bare irreplaceable responsibility?
Auditor would only comment through the ‘Auditor Report’ after all the auditing procedures finished. ‘Clean Audit Report’ does not ensure the financial report contains no mistakes. For any data that is mistaken and caused less tax submitted, the company should bare irreplaceable responsibility.
Q9: While submitting tax return, all the required taxing document and financial report are attached. However, Inland Revenue Department has continuous questions. Is auditor or tax representative a) being responsible in follow up; or even b) answering questions without charges?
Answering questions from the Inland Revenue Department should be the company’s and its director’s responsibility. Auditor may provide related service, tax representative may represent the company or its director in handling and follow up. Such service fee should be made in consent, varies from the seriousness of problem and techniques needed, before any service that provided.
Q10: Under Part one – Assessable Profit and Assessable Loss (collectively called accessible tax result) on tax return, should I fill the form with the number reflected from the accounting and auditing profit or loss report (collectively called financial result)?
Except for tiny or extremely linear business, in usual case, ‘Financial Result’ does not equals to ‘Assessable Tax Result’.
Financial Result is calculated in line with ‘Accounting and Auditing Standards’. For corporate bodies and its shareholders, it generally includes a) expenses not covered from 'Inland Revenue Ordinance' (E.g. Start-up Fee or Penalties & Fines) ; b) non-taxable income (E.g. capital appreciation & overseas profit) ; or c) other items (E.g. any tax-free quotas or tax reduction)…etc. Tax Adjustment has to be made based on the ‘Financial Result” to calculate the ‘Assessable Tax Result’
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