Audit of Hong Kong Companies

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Commodity trade

Audit of Hong Kong companies trading in commodities

The so-called bulk commodity trade refers to the material commodities that can enter the circulation field, have commodity properties and are used for industrial and agricultural production and consumption. In the financial investment market, commodities are homogeneous, tradable and widely used as basic industrial raw materials. Commodities generally include3Energy commodities, basic raw materials and agricultural and sideline products, such as crude oil, non-ferrous metals, steel, agricultural products, iron ore, coal, etc.
China now has many large enterprises, state-owned units need to source commodities from abroad. But there are many inconveniences in making bulk purchases directly, so many companies use Hong Kong companies to make bulk purchases. Now I would like to share with you what Hong Kong companies need to pay attention to when using Hong Kong companies for bulk commodity purchases.

Commodities trading enterprises in the audit matters needing attention

First, the preparation of audit materialsFor the purchase of bulk commodities, most companies will use the form of bills (such as letter of credit, long-term, back-to-back, etc.) for payment. Therefore, in the preparation of data, it is necessary to match the revenue-related contract invoice and relevant bill data, as well as the corresponding cost contract invoice and cost-related bill. This will make the accounting clearer (especially back to back).
Secondly, due to the use of bills, the bank confirmation letter will clearly list the outstanding bills (not the total amount, but the outstanding bills one by one) when the Hong Kong company conducts the audit. Therefore, when Hong Kong companies conduct accounting treatment, they also need to show each transaction to cope with the audit.
Finally, some clients, in order to smooth the prices of the commodities they need to purchase, use Hong Kong companies to trade futures as a hedge against international commodity price fluctuations. For such Hong Kong companies, complete futures trading records and a complete futures trading list are also required. (As there is no capital gains tax in Hong Kong, profits from futures investment do not need to be calculated, but losses from futures investment cannot be deducted from profits tax)
Second: the recognition of revenue cost amountDue to the characteristics of large volume and weight of bulk commodities, the amount of revenue and cost recognition is different from that of ordinary trading companies. Many Hong Kong companies will first sign a target amount when purchasing, but at the end of the transaction, they will re-confirm the trade amount and settle the balance when they actually receive the goods. Therefore, when making accounts, it is also necessary to note that the amount of revenue and cost will be recorded when the goods are handed over at the beginning of the period. At the same time, relevant bills are needed to adjust the amount of revenue and cost after the final payment is confirmed. The last confirmed amount of revenue and cost shall prevail.
Third: Preparation of offshore claimsAs profits tax in Hong Kong is a territorial tax, the profits generated from the trade may not be subject to profits tax in Hong Kong as long as the trade does not occupy Hong Kong resources. However, the income and cost of bulk commodity trade are mostly one-to-one corresponding and easy to distinguish and match. Therefore, Hong Kong companies can distinguish offshore trade from onshore trade, and profits generated from offshore trade can not be subject to profits tax in Hong Kong.

Hong Kong corporate Knowledge of commodity trading enterprises

Pay attention to data preservationBecause the Hong Kong Tax Bureau is different from the Domestic tax Bureau, the domestic tax Bureau will communicate with the enterprise in time when there is a problem, but if the Hong Kong Tax Bureau asks the enterprise matters, it will generally ask the enterprise3~4Companies will be asked to provide relevant information. So it needs special attention.
Preparation for a spot checkAs a result of bulk commodity trading Hong Kong companies will generally have: trade volume, high freight, low gross profit margin, low profit characteristics. So this kind of company by the Hong Kong tax Bureau spot check inquiry probability is higher. So in order to respond to inquiries from the Hong Kong Tax Bureau, such Hong Kong companies need to do some homework.1.For large trade amount, it is necessary to prepare a complete import and export contract and invoice;2.Prepare related logistics contracts and invoices and related goods circulation documents; (Some companies may contract the transportation to a third party, in which case it is better to ask the third party company to provide copies of the relevant transportation documents);3.Keep complete futures documents.4.If there are other expenses such as commission, the relevant expense documents should be kept completely.

To sum up, Hong Kong companies engaged in commodity trading can reduce their tax risks to a certain extent if they prepare audit materials and keep relevant materials according to the above content.

HUANZE focus on Hong Kong company audit accounting tax17years

: I have experience in auditing Hong Kong companies in various industries, and have served many private enterprises, listed companies, multinational groups and state-owned enterprises. I can tailor service solutions for overseas companies based on industry customers' conditions, so as to avoid overseas risks and gain more corporate interests.