[rustgal17]

Hi,

Recently, I received a letter from the HK Tax Department seeking for an audit on 2006 tax return on my sole proprietorship business which I have closed since 2007. I paid profit tax in 2005 and make a loss in 2006 and closed the business in 2007. To be honest, I may have lost most of the receipts and documents proofing the expenses claimed in my tax return after closing the business in HK and moved out of HK. Now the Tax Dept demand explanation and document proof for some of the expenses such as entertainment and travelling expenses incurred in year 2006. What should I do? I need some professional advice??

[PDLM]

I think you probably do. It is a legal requirement that you keep proper records of your business for seven years, so you have some potential problems here.

[rustgal17]

I know that is why I am trying to locate all the files which were sent by post when I moved out of Hk last year and I have asked for extension to submit those documents. I just want to know what is the penalty in this case if I can't submit enough proof. Will I go to jail??

[PDLM]

No, but upon conviction for failing to keep proper records you would have a criminal record (which has an impact on things like getting visas to travel to many countries) and would be liable to a fine at Level 6 (which is currently $100,000 I believe).

Of course, if the auditor believes that you have made a false return then that could involve jail.
(Details of some past prosecutions here.)

[KnowItAll]

I assume you did not use an auditor / accounting co given that this is a sole proprietorship?

[Crocodile]

It depends on how much money we are talking about (Revenue/Expenses for your business), but I would recommend getting professional help.

They will not like the fact that you have thrown out (misplaced or whatever) documents. This is clearly irresponsible and could be viewed an intentional attempt as tax avoidance.

You should have bank statements, or be able to get bank statements. That is probably your starting point. You must also have computer records (excel, work, access, etc).

Good luck.

[KnowItAll]

Wait a second, are you in Hong Kong?

If you're not in Hong Kong are you planning on returning here?

[rustgal17]

Hi,

I am not a PR or citizen of HK. Actually, I am a Malaysian. I am not trying to cheap the tax office and I have paid the necessary tax required for my business as well as property, income tax, etc. When my business did not do so well, I declare a loss and subsequently terminate the business last year. I have repaid tax for 2007 based on profit made in 2006 and it was returned to me when I declare the lossess in 2007. I did not expect any more queries from the tax office and when I sold my apt (at a loss) and moved all files out of HK by post and there is where the files are not completely in order. I still have all the tax filings and most of the receipts for all the expenses claimed but most of the air-tickets payment were by online and credit card payment which I do not keep anymore. I do not intend to go back to HK anymore but still would like to have a clean record. I have not done anything wrong.

[rustgal17]

BTW, the total income was only about HK$700K and the queries on entertainment sum is HK$55K, overseas travelling expenses in the region of around HK$110K plus hotel accommodation of around HK$30K. The thing is I don't understand why the tax office accepted my tax return with a loss declaration and even refund me the tax prepaid in previous year and issued a statement on the lossess for 2007 and after I have filed a notice to terminate my business and the audit comes. I did not engage any accounting services for the tax submission. I did it myself since it is a rather operation and of course trying to save some expenses.