Hunter Ltd ("HL") is incorporated in Hong Kong and carried on trading business in Hong Kong. All its customers are located in Europe. HL held exhibitions in Europe to promote its products. HL has appointed around 50 fully authorized agents in Europe. Its fully authorized agents solicited customers in Europe. The agents negotiated and concluded all contract terms with the customers and would inform HL to deliver goods. Upon receiving agents' sales order confirmations, HL's local sourcing team, which comprised of 20 staff members and 1 purchasing director, would start to negotiate with suppliers in Hong Kong. There were 20 suppliers in Hong Kong. When all trading terms were concluded, HL would place orders to the suppliers. Currently all trading profits of HL are reported as taxable in Hong Kong.

Required:

Critically analyze HL's current profits tax reporting position and recommend possible measures to enhance its tax efficiency

Tax Rates

Standard rate 15%

Corporate profits tax rate

First $2,000,000 8.25%

Remainder 16.5%

Progressive rates

First $50,000 2%

Next $50,000 6%

Next $50,000 10%

Next $50,000 14%

Remainder 17%

Tax Reduction (where applicable)

Percentage of reduction 100%

Maximum per case $20,000

Personal Allowances $

Basic 132,000

Married person's 264,000

Child - 1st to 9th (each) 120,000

Additional (for year of birth, each) 120,000

Dependent parent / grandparent (each)

Basic 50,000

(aged 55 or above but below 60: $25,000)

Additional 50,000

(aged 55 or above but below 60: $25,000)

Dependent brother / sister (each) 37,500

Single parent 132,000

Personal disability 75,000

Disabled dependant (each) 75,000

Deductions (maximum)

Self-education expenses 100,000

Home loan interest 100,000

Elderly residential care expenses 100,000

Contributions to recognised retirement schemes 18,000

VHIS policy premiums (for each insured person) 8,000

Annuity premiums and tax deductible MPF voluntary contributions 60,000

Depreciation Allowance

Plant and machinery

Initial - 60%

Annual - Air-conditioning plant: 10%

Furniture and fixtures, office equipment, room air-conditioning units,

domestic appliances: 20%

Motor vehicles, electronic data processing equipment (computer),

electric cookers, production machines: 30%