In the audit in Hong Kong, the customer often uses labor cost to offset the company's profit. What risks exist in the pre-tax deduction of labor cost in the audit of the company in Hong Kong?

Although many clients have registered their companies in Hong Kong, they do not rent office buildings in Hong Kong for field work. Most clients actually work outside Hong Kong, namely in mainland China. Hire mainland personnel to run the company and pay salaries. The payment of wages in a Hong Kong audit is subject to Hong Kong salaries tax (similar to mainland personal income tax, a tax levied on the actual income earned in Hong Kong by the person in any position or employment). There is no withholding agent for salaries tax in Hong Kong. However, Hong Kong companies that pay salaries are required to fulfill the obligation of reporting to the Inland Revenue Department faithfully, that is, to the Inland Revenue Department annually56B(Employee Salaries Tax Return) to inform the Inland Revenue Department that salaries were paid to these officers during the year.

Salaries tax is levied on income derived from or derived from Hong Kong. Income outside Hong Kong is not subject to Salaries tax. Therefore, the average annual income of each employee is inHKD132000The left and right tax risks are relatively small, if greaterHKD132000You can object to tax on the basis that your income is not from Hong Kong. In this case, you only need to fill in the Salaries tax form and do not need to pay salaries tax. But in practice, there are clients who do not pay salaries tax that the wages do a high profit tax deduction.

Even if it is possible to object to tax on income not originating in Hong Kong, the Hong Kong Tax Bureau may use proof of tax paid in mainland China to prove tax paid in mainland China if it is too high. Therefore, the labor cost in Hong Kong audit should be within a reasonable range so that the tax risk is relatively small.

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