Are Electronic Records Valid in Hong Kong?
8 minute read
Electronic records in Hong Kong offer a fast and scalable solution to stay ahead of audits with no risk of overstocking paper documentation. This innovation is something that makes business operations faster and more efficient. If you run a business in Hong Kong, you may be wondering: Are electronic records valid in Hong Kong?
This article explains the important information related to electronic record keeping in Hong Kong.
Record keeping is important for a business in Hong Kong
According to the Inland Revenue Ordinance, a company that carries on a trade, profession, or business in Hong Kong needs to keep sufficient records in Chinese or English. These records should show a company’s income and expenditure thus allow the assessable profits to be readily ascertained.
Such records should be retained by a company for a period of a minimum of 7 years. Should you fail to comply with the requirements of the Ordinance without having a reasonable excuse, you may be liable to a maximum fine of $100,000.
The records listed in the Ordinance include:
- Books of accounts recording receipts and payments or income and expenditure
- Vouchers, bank statements, receipts, and invoices
- Records of the liabilities and assets of the person in relation to that business, trade, or profession
- Records of all entries from day to day of all sums of money received and expended in relation to that trade, profession, or business
- Where that trade, profession, or business involved dealing in goods
- Where that business, profession, or trade involved the provision of services, records of the services need to be provided in sufficient detail, thus enabling the Commissioner to readily verify the entries
In case you need more help regarding this issue, try downloading the official guide. This information pamphlet instructs businesses on how to keep business records properly.
When it comes to electronic records, you should also download a special copy of the information pamphlet about keeping records in electronic form for tax purposes.
Are electronic records valid?
In Hong Kong, it is acceptable to keep business records electronically. However, to keep everything legal, the original source of documents such as check butts, invoices, bank deposit slips, and so on, have to be kept too.
Furthermore, some taxpayers, especially those who have to keep a huge volume of source documents, have raised inquiries to the IRD on whether it is permissible for them to keep their source documents in an alternate form such as by scanning the documents and storing them in CD-Roms or DVD-Roms.
According to the law, it is completely valid and you are allowed to keep the relevant documents in CD-Roms or DVD-Roms. This is an acceptable alternative to keeping the documents in their original forms.
What are the forms of electronic records?
There are various forms of electronic records, and the two most common are scanned copies of receipts and invoices.
The receipt scanning technology has a platter of advantages over other forms of electronic records.
Obviously, by using this form, one can save a lot of time. It takes just a few seconds to scan a receipt or take a photo of it.
On top of that, there is no need to use paper for this. When you scan receipts, you actually save space and reduce clutter. And there is little to no need for filing cabinets and storage units.
Finally, the biggest benefit is that financial data can be processed almost immediately.
The principle with scanned invoices is quite similar. Scanning invoices allows an individual to get a digitized version of invoices, accounts payable, and so on.
Once scanned, they can be placed onto a digital records management system, which can be accessed at the click of a button or shared in a matter of a few seconds.
A good thing with invoices is that you can secure them with a password, which is done through encryption technology.
Hence, scanning invoices means that you get to be fast, efficient, and that all invoices are stored safely.
Is there a benefit to keeping paper records?
Some business owners prefer keeping paper records, remaining loyal to the old ways of accounting. However, the truth is that there is actually no significant advantage of keeping paper records compared to keeping electronic records.
If you opt for electronic record keeping, you’ll see that it’s simple and easy to capture information, generate reports, get e signatures, and meet tax and legal reporting requirements.
A number of businesses take advantage of accounting software to produce the necessary reports and simplify electronic record keeping.
Notable benefits of keeping records electronically include:
- Efficiency when it comes to storage space
- Helps record business transactions
- Easy report generation (invoices, debtor reports, financial statements, employee pay records, inventory reports)
- Automatically tallies amounts and provides reporting functions
- Keeping up with the most recent tax rates, tax laws, and rulings
On the other hand, some people still keep paper records, since they are less expensive (no software), easier correction of entries with manual systems, and arguably lower risk of corrupted data.
If you decide to give a chance to the modern way of keeping records, know that you should have two things in mind:
- Consult your accountant or financial adviser before you purchase accounting software for record-keeping.
- Check if the accounting software you have picked is tax compliant. That way, you will ensure that everything is kept within the legal regulations of Hong Kong.
Use apps like Receipt Bank to automatically keep track of your receipts
The Receipt Bank app helps minimize the time an individual would spend on data entry.
With it, you just take a photo of a receipt, click on submit for processing, and the parsed data will show up for you to double-check and send to the approver. It is possible to set the camera to photograph several receipts, one after another, or a single receipt that has more than one page.
The app can also identify the transaction date, currency, tax, supplier, and category. If it recognizes the credit card which was used for the transaction, it will sync the records with the accounting application that the company uses. That means that the item won’t be entered twice.
Receipt Bank has three user levels — administrator, expense approver, and basic user.
Administrators set the company rules and policies, and have access to the entire in-box.
Approvers have a slightly different role. They can’t change account settings, but any approver can sign off on any submitter’s report, without a formal hierarchy.
The three levels mean that Receipt Bank’s methods of approval are different from any of the others available on the market.
Approvers are advised on how many items are waiting for their approval. As an approver, one can click on the item itself to see more details, including the photo of the receipt or invoice. Approving is totally manual. If a user sees something they don’t like, they can click on a small flag icon next to the item and they can also leave a note.
However, there is no way to automatically flag a policy violation. The only way you can send a problematic entry back to an employee is to use the email feature and thus send back a CSV or PDF copy of the entry.
Finally, the app does not require users to rely on expense reports. There is no need to submit or create collections. An office administrator can assign receipts to a report on their behalf.
Also, it is possible to grant access to an accountant or bookkeeper in order to add new items, edit items, extract, or push data from an account.
The new electronic way is obviously the best way to keep records. So why not do yourself a favor, opt for one of the best practices of modern business, and start keeping your records electronically?
Keeping electronic records vouches for a seamless and almost paper-free way of bookkeeping. In addition, all modern and successful companies have already adopted electronic records keeping.
As an industry leader, Sleek also relies on the most advanced technology when it comes to accounting. If you need a team of professionals to do your electronic record keeping, our bookkeeping services are there for you.