Bookkeeping and Accounting in Hong Kong

Proper accounting records provide insightful and crucial information required to facilitate the managerial decision-making process. Proper bookkeeping helps in the maintenance of accounts and auditing of financial statements, which are critical to the filing of annual returns.

When your accounts books are clean and compliant with the Internal Revenue Department’s requirements, your company is in good books and can enjoy a good reputation without suffering penalties.

Overview:

• Making audit arrangements
• Taxes in Hong Kong
• Drafting of auditor’s and director’s report
• Bookkeeping in Hong Kong

Making audit arrangements

According to the Hong Kong Companies Ordinance, all companies must maintain account records to comply with the statutory requirements. A certified public accountant must audit a Hong Kong incorporated company’s annual financial statement. Limited companies in Hong Kong must prepare financial records to comply with Hong Kong Financial Reporting Standard. Companies can adopt any date as their financial year-end and may prepare their financial statements in any currency.

At the Annual General Meeting, the statement is presented to the company shareholders and submitted to the Inland Revenue Department or it may be retained for submission later.

Besides meeting compliance, account books serve many purposes:

• Assist with financial planning
• Reduce audit and compliance costs
• Represent your company’s competence before investors, partners and suppliers
• Enable timely submission of accurate tax returns

Taxes in Hong Kong

Hong Kong has a tax-friendly environment, which attracts offshore companies to the jurisdiction. Its low rates of taxes make it an attractive business destination. Every Hong Kong business must pay taxes by filing their profits tax return with the Inland Revenue Department.

The IRD issues the first PTR one or two months before the company’s second anniversary of the date of incorporation. Following this, the company must submit the completed profits tax return to the IRD within three months. Additionally, it is important that the PTR covers the first 18 months of incorporation.

A Hong Kong-registered company records must include:

• Books of accounts with receipts and payments
• Documents to support the entries in the account books, including receipts, bank statements, vouchers, and relevant papers
• A record of the business income and expenditure and assets and liabilities
• A complete record of the money received and expended along with supporting details

When focusing on accounting and bookkeeping in Hong Kong, it is important to be clear on the following:

• The fiscal year-end date for your business
• Preparation of the following documents: All bank statements, invoices, expenditure receipts, general ledger, balance sheet and income statement

Accounting and taxation are of immense importance to any business.

Apart from dormant companies, all Hong Kong-registered businesses should get their financial accounts audited by registered auditors every year. Auditors must ensure compliance with Hong Kong Standards on Auditing laid down by the Hong Kong Institute of Certified Public Accountants.

All newly incorporated companies in Hong Kong are required to submit the first set of audited accounts to shareholders at the AGM (annual general meeting). They must do it within nine months of their financial year-end. Following this, all subsequent AGMs must be held within 15 months.

Drafting of auditor’s and directors’ report

Companies registered in Hong Kong must submit an Independent Auditor’s Report along with a Directors’ Report to fully abide by the annual filing requirements. According to the Hong Kong Companies Ordinance 2014, Director’s Report should include more analytical and advanced information for companies that are not eligible for the reporting exemption.

However, these companies may pass a special resolution to opt-out of this requirement.

A director’s report is prepared in conjunction with the company’s annual accounts.

All of the company’s records must be maintained and retained for a period of seven years since the date of transactions in Hong Kong to avoid a penalty. Other benefits of maintaining records and accounting in Hong Kong include:

• Updated and appropriate records are crucial to the accurate filing of profit tax returns
• Accurate records ensure that you have complied with the government regulations
• Clean and accurate records are critical to identifying losses and theft in the company

Bookkeping in Hong Kong: Compliance requirements

• Under the Companies Ordinance, a private limited company must have a registered auditor unless it is a dormant company with no relevant accounting transactions during a financial year.
• Notify the government within 15 days if the statutory books are relocated from the registered office.
• Notify if there has been any allotment of new shares. This notification must be issued within one month of the allotment.
• During an AGM, the directors must put forth the financial accounts of the company in compliance with the framework of the Financial Reporting Standards.
• Comply with the deadlines for annual accounts filing. It should be as per the requirements of Companies Registry and Tax Authority.
• If the accounting records are not present in Hong Kong, it is important to keep the returns within the jurisdiction. Hong Kong follows the Financial Reporting Standards framework issued by the International Accounting Standards Board since January 1, 2005.

According to the Hong Kong company law, every company is required to file a Profits Tax Return and audited accounts annually with the IRD.

Although companies are required by the Companies Ordinance to file Tax Return within one month from notification release by the IRD, they may request for an extension. Typically, the annual return must be filed at least once a year. A company that fails to submit their tax return by the due date may incur a penalty.

The names and addresses of the company directors and secretary and the names of its registered shareholders along with their addresses, must be mentioned in the tax returns. One of the company directors or secretary must sign the return and file the same within 42 days of the company’s first incorporation anniversary.

Next steps

We offer no-nonsense accounting for companies looking to set themselves up in Hong Kong. Get in touch with us to begin.