With the gradual deepening of the strategic planning of the Guangdong Hong Kong  Macao Greater Bay Area, Hong Kong's advantages as an important support point  of the "the Belt and Road" are becoming more and more obvious, and  the number of Hong Kong companies registered will steadily increase in the  future. Accounting audits and zero reporting for Hong Kong companies are important  aspects of their operations, but in the CRS environment, zero reporting for  Hong Kong companies may face certain risks.

If classified according to the business of Hong Kong companies, there are  two types of tax reporting methods for Hong Kong companies: zero declaration  and normal audit tax reporting. Hong Kong company zero declaration refers to  the situation where a company has no business transactions or any incoming  or outgoing funds in its bank account, and can directly make a business inactivity  report. It is applicable to Hong Kong companies that have no operations. Normal  audit and tax reporting refers to conducting tax audits and audits in accordance  with the requirements of the Hong Kong Inland Revenue Department.

According to the Hong Kong Companies Ordinance, zero declaration is required  to meet certain conditions. If it does not meet the zero declaration conditions,  it can only be audited and reported. Due to the fact that zero declaration  is faster and simpler than normal audit and tax reporting, many Hong Kong companies  have been handling zero declaration for a long time in the past. Little did  they know that in the context of CRS sweeping the world, non compliant zero  declaration will face huge risks:

1. Suspected of "money laundering" by the Hong Kong Inland Revenue  Department
 Applying for zero declaration of Hong Kong companies requires strict compliance  with the conditions. Long term zero declaration applications that do not meet  the conditions will be considered as non compliant tax avoidance. Once investigated  by the tax bureau and the Hong Kong company is unable to disclose the source  of its wealth, it is likely to be suspected by the tax bureau of engaging in  illegal activities of "money laundering". Especially in the context  of CRS, the random inspection of zero declaration by Hong Kong companies will  be even stricter. Although spot checks are not a census, please do not take  any chances. Even if the company is deregistered, the Hong Kong Inland Revenue  Department still has the right to access all accounts of the Hong Kong company  within 7 years.

2. Bank account cancelled
 After registering a Hong Kong company, many companies will open offshore banks    to match it. Offshore accounts are important tools for Hong Kong companies    to file taxes and make trade payments. If a Hong Kong company has opened    a bank account and there are business transaction records in the offshore    bank account, it must handle accounting and tax reporting normally. The Hong    Kong Inland Revenue Department found that such companies are still making    zero declarations, which will affect the use of Hong Kong bank accounts.    Mild cases may require re accounting, while severe cases may result in the    forced closure of offshore accounts, causing the company to be unable to    operate normally externally.

3. Faced with high fines
 Hong Kong companies that have business dealings should strictly follow the    company regulations for accounting, auditing, and tax reporting. After 18    months of establishment, they should receive tax returns issued by the Hong    Kong government and handle them immediately. Hong Kong companies that have    business dealings still hope to handle zero declaration with luck, and naturally    will be punished by the Hong Kong government. The company will also be fined    HKD 50000, with a maximum of HKD 300000.

4. Listed on the government blacklist
 The Hong Kong Inland Revenue Department conducts a sampling survey of a batch    of companies every two to three years. If a company fails to meet the zero    declaration requirements and does not conduct regular accounting and tax    reporting every year, it may leave a stain on the Hong Kong government website    or be blacklisted. Even worse, the credit of important controllers of Hong    Kong companies is affected, to the extent that reopening accounts or establishing    companies will be affected.

After a Hong Kong company has been registered for 18 months and receives the  tax form, it should be processed immediately. Only companies without business  operations that meet the conditions can apply for zero declaration. Hong Kong  companies that have been making zero declarations for a long time without being  randomly inspected should promptly make up for their accounts and pay taxes.