The decision to incorporate an offshore company in Hong Kong is enjoying the lovely business environment. The Hong Kong administration has worked very hard to make the business environment one of the best in the world. From initiating major support programs for start-ups to stabilizing the banking system, Hong Kong is stopping at nothing in ensuring that every business flourishes. For your business to enjoy most of these benefits, every company is required to demonstrate tax substance. In this post, we look at the best tips for maintaining tax substance.
What does tax substance mean? While there is no clear definition of tax substance, it is used to mean the value companies bring to Hong Kong in economic realms. Therefore, it means how your company operates and the extended enhancement to revenue generation, tax enhancement, and making Hong Kong better. Here are the four main tips to help you maintain tax substance for the company.
Four most important tips for maintaining tax substance
Ensure that the business runs from Hong Kong
Though a company registered in Hong Kong is allowed to carry its operations away, such operations means it will qualify for 0% taxation and bring no tax value locally. However, if most operations are done from Hong Kong, the resulting profit will be taxed by IRD and greatly enhance the company’s tax substance.
Make sure most operations are done locally
Hong Kong values companies that operate locally because they trigger a chain of events and spur growth in other businesses. For example, if a restaurant operates locally, it will source services of internet, telephone, and even staff locally. This means that other businesses and individuals will make income and expand the tax bracket.
Hold board meetings in Hong Kong
The place where a business holds meetings is crucial to defining its tax substance. Bringing board members will involve a chain of activities such as transport, hospitality, and other support services. All the additional services will raise the tax generated through IRD and keep the economy growing.
Maintain local bank account and acquire some assets
Tax substance is a complex thing that extends to making Hong Kong a better place according to IRD. Therefore, your operations as a company must be seen to help nurture the ideology of making Hong Kong a better place. This can be achieved by operating and maintaining bank accounts with Hong Kong banks and acquiring some assets.
Meet all the tax obligations on time
When you make the application for tax resident certificate, the first set of documents are the tax compliance reports. It is, therefore, crucial for you to pay all the business profit tax, property tax, and other taxes on time. The records should also be properly kept in line with the IRD requirements.