Local professionals could slip through loophole, says tax expert

A loophole in the free-trade arrangement between Hong Kong and the mainland could possibly be used by locally based accounting firms to gain greater access to the mainland market than is allowed under the pact, an official at a major accounting association says.

With only 130,000 certified accountants on the mainland serving a population of 1.2 billion, compared with 50,000 for Hong Kong's seven million people, China is a natural growth market for accounting firms.

But the Closer Economic Partnership Arrangement, which will take effect in January, offers little in the way of direct advantages for Hong Kong actuaries and auditors eyeing the mainland. Only two changes were offered to current restrictions: Hong Kong accountants who are also certified on the mainland will now be treated equally, and temporary permits for auditors to work across the border will now be valid for a year instead of six months.

In all other respects, nothing has changed. Hong Kong firms wanting to set up joint ventures on the mainland will still need annual income of at least US$20 million and must employ at least 200 professionals and 60 local staff, requirements that about nine out of 10 Hong Kong accounting firms will not be able to meet.

But Marcellus Wong, deputy president of accounting association CPA Australia, says Hong Kong firms can get around these restrictions because some of the services they provide - business advisory services and tax advice - fall into a grey area.

'Many accounting firms are not just doing auditing,' said Mr Wong, who is also a tax services partner at international accounting firm PricewaterhouseCoopers. Firms such as his offer more than accounting and auditing services. For example, they also advise companies planning to invest in China on strategy, the amount to be invested and location.