Living the high life as a sole proprietor

IF YOU'RE one of the money-driven, small businessmen in Hongkong, you have probably explored a sole proprietorship - an easily attained title making you sole owner of your ''business activity'' - due to the opportunity for unlimited tax write-offs.

While analysts agree the set-up is open to abuse during the first four to five years, they emphasise two important drawbacks: sole proprietorships come with unlimited liability and possible disaster if individuals choose to continue abusing the system.

But how easy is it, say, for a self employed shopowner to write-off grocery bills and weekend trips on their tax return? And are the risks severe enough to dissuade abuse? ''Unlike a limited company which demands at least two share holders, two directors, certified accountants and secretaries, setting up a sole proprietorship is extremely simple,'' said Mr Wayne Law, a chartered accountant with Law and Associates.

''There is absolutely no capital needed, just an annual registration fee of $1,250.'' Applicable to any individual involved in ''business activities'' producing income, sole proprietorships can provide a simple way for individuals to write-off 100 per cent of all expenses, whether personal or business related.

''Eventually, the Inland Revenue Department (IRD) will judge the sole proprietor's expenses in relation to their income earned, to make sure there is a logical connection between the two. But they only do that after about four or five years of business activity,'' Mr Law said.

He said individuals can write off exorbitant expenses, while showing little or no income, due to the initial period of leniency for new businesses.

There are two possible scenarios in sole proprietorships. The first involves total self employment, where the individual works for himself and not for an employer. In this case, the individual may be the only person involved in the company, or they mightemploy thousands of others, who become employees of the ''sole owner''.