The consequences of tax evasion are severe, and it is imperative to avoid engaging in such illegal activities. Is late tax payment considered tax evasion? Is it legal for self-employed individuals to open a company for tax avoidance purposes? Can tax evasion be reported? There are various tax-saving strategies available without resorting to evasion. MoneyHero clarifies the myths surrounding tax evasion and highlights the distinction between tax avoidance and evasion.
Tax Evasion vs. Tax Avoidance
The difference between tax avoidance and tax evasion lies in the legality and intent. Tax avoidance is the legal reduction of tax liability through permissible means. However, if the tax authority suspects and determines that a taxpayer’s avoidance actions are aimed at tax evasion, involving false means or schemes, penalties will be imposed. Tax evasion, on the other hand, is the deliberate failure to provide required information to reduce the tax payable, which is a criminal offense punishable by fines and even imprisonment.
Understanding the tax assessment notice, payment methods, installment payments, and the consequences of late payment or how to apply for a deferral are crucial. It’s also important to know the legal avenues to oppose a tax assessment.
Serious Consequences of Tax Evasion in Hong Kong
Tax evasion carries significant penalties, including imprisonment for up to 3 years and a fine of up to HK$50,000 for each charge, plus a penalty equal to three times the undercharged tax. If the taxpayer has not been assessed or the assessed amount is lower than the proper tax amount, the tax authority can trace back up to 6 years. In cases of fraudulent or intentional tax evasion, the period can extend to 10 years.
Criminal Liability and Penalties for Tax Evasion
Tax authorities have specialized units to investigate and combat tax evasion cases. In the fiscal year 2022-23, the tax authority’s audit and investigation department completed 1,805 cases, recovering approximately HK$2.6 billion in back taxes and penalties.
Is It Legal to Open a Company for Tax Avoidance?
As entrepreneurship becomes more prevalent and the number of freelancers increases, many are opening companies for business. It’s important to note that opening a company for tax avoidance must be based on legitimate business reasons, not solely for tax savings. Otherwise, it may attract scrutiny from the tax authority, which could investigate potential tax evasion.
Tax Collection in 2022-23: HK$2.6 Billion in Back Taxes and Penalties
While Hong Kong’s tax system is relatively straightforward, especially for salaries tax, the main issues tend to be unintentional errors in reporting rather than deliberate evasion. However, there are still those who blatantly disregard the rules. In the fiscal year 2022-23, the tax authority’s audit and investigation department handled 1,805 cases, collecting a substantial amount in back taxes and penalties.
Please be aware that tax regulations are subject to change, and it is advisable to consult with a professional tax advisor to ensure compliance with the latest tax laws when planning your taxes.