Tax evasion is one of the oldest corporate crimes in the book. Every now and then, we hear stories of sneaky CEOs who somehow managed to avoid paying corporate tax in the countries that they operate.
Eventually, they get caught and often have to serve a jail sentence. In this article, we’ll examine a few things you should know about evading tax in Hong Kong and what the implications are.
Read on!
What is Tax Evasion in Hong Kong?
Hong Kong is one of the worst biggest tax havens, making it ironic to see how some CEO’s go to extreme lengths in avoiding tax.
According to the Hong Kong Monetary Authority, tax evasion is the “use of illegal means to reduce tax liabilities, including deliberate concealment of assets from taxation authorities”
What are some common tax evasion practices?
Tax evasion in Hong Kong implies tax avoidance on any of the two tax rates applicable to corporations. This is possible through any of the following means:
Falsifying of company income report for the fiscal year
Reporting expenses falsely wilfully with intent to avoid paying the real tax on assessable profits
Not informing the Inland Revenue Department of the organization’s chargeability to the profit tax.
Overstating company expenditure
Purposely omitting employees’ remuneration details
Although tax evasion can keep you from making significant tax payments, you can get jail time if caught.
How is Tax Avoidance Done?
Tax avoidance differs from tax evasion in that it involves the use of legal accounting practices and procedures to reduce the amount of tax that the organization would have to pay. This is done by:
Minimizing taxable income
Maximizing tax deductions and credits
Controlling expenditure and earning timings.
What are the penalties for evading tax?
The Inland Revenue Ordinance (IRO) has requirements to ensure that all companies pay taxes and accurately file tax returns. Although the penalties vary, the severity of the punishment depends on:
The nature of the offence
The degree of liability of the offence
The strength of the presented evidence
The amount of underreported tax
How long the offence was committed
The penalties for breaching these rules may be as low as a $10,000 fine or as high as 5 years imprisonment sentence.
When Should I Defer Income and Accelerate Deductions?
You should accelerate deductions and defer income if you predict that your profits will rise in the coming years and if you feel your tax rates the following year will be very high.
How Can I Delay Income and Accelerate Deductions?
You can delay income and accelerate deductions by:
Delaying collections of year-end payments till after the fiscal year
Delaying dividends
Delaying capital gains
Accelerating operating expenditure
Accelerating payments
Minimizing tax deductions and credits
Note that you have to know the exact time and scenario to apply any one of these measures. To be on the safe side, a tax planner like SJH Global Limited can help you navigate these waters.
Need any advice on tax planning?
To be on the right side of the law, it’s important to know all the legal requirements and procedures involved in filing accurate tax returns- this is something that SJH Global can help you with.
We offer company secretarial, accounting and taxation services, acting as your tax representatives and helping you prepare financial statements, ledgers, completing and filing profit tax returns.
Contact us today!
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