Financial Year End for Hong Kong Companies
4 minute read
When you establish your business, it is crucial to determine the Financial Year End (“FYE”). If you choose a suitable FYE for your company, you may benefit from:
- Lower accounting fee;
- Lower auditing fee; and
- An extended period of tax reporting.
For a Hong Kong company, it is free to choose any date as its FYE. Sounds easy, right? But you may wish to know more about what is Financial Year and from the accounting and tax perspective on how to determine the most suitable FYE for your company. Meanwhile, we also share with you information about the change of FYE. Let’s look into all of these together.
What is a Financial Year?
A financial year is a period of any 12 consecutive months that a company uses for accounting purposes and preparing financial statements. It is not necessarily the anniversary month of your company incorporated. Accounting records must be kept in relation to a company’s financial year.
Where a company has any subsidiaries, the board of directors (“Board”) should ensure that the financial year of each of its subsidiary coincides with the company’s financial year, unless there are good reasons for that.
The First FYE
When a Hong Kong company is incorporated, its first financial year commenced on the date of incorporation and ends on a date determined by the Board. The Board should specify a date as the FYE of the company before the first anniversary of incorporation of the Company. Where the Board fails to do so, the last day of the month of the company’s first anniversary of incorporation would be treated as the first FYE of the company. In addition, the first FYE must fall within 18 months. In other words, the first financial period of the company should not be more than 18 months.
Here are two examples for illustration:
Incorporation date: 1 May 2018
FYE: 31 December
First FYE: 1 May 2018 – 31 December 2018
(The first financial period cannot exceed 18 months so the first FYE cannot be until 31 Dec 2019.)
Incorporation date: 1 October 2018
FYE: 31 December
First FYE: 1 October 2018 – 31 December 2019
From the Accounting perspective –
When you have a group of companies, you should ensure all your companies adopt the same financial year-end unless you have a good reason for not doing so. This is not only because it is requested under the Companies Ordinance but also for the sake of ease in accounts preparation. Other than preparing accounts for each company, the holding company also has to prepare consolidated accounts.
If the group companies have different FYE, the companies have to prepare two sets of accounts, one for its own FYE and one for the FYE of the holding company for consolidation purpose. The fee that you need to pay to the accountants and auditors would be much more than just one set of accounts. Hence, you save both time and cost to have the same FYE for the group companies.
From the Taxation perspective –
The Inland Revenue Department (“IRD”) will issue the first Profits Tax Return (“PTR”) to the company in 18 months of its incorporation. If a company has already commenced business and is not a dormant company, the PTR has to be completed with the audited financial statements and related tax computation as supporting for submission to IRD. The company has three months’ time to file its first PTR. For subsequent PTR, the IRD will issue it to the company in early April each year.
The filing deadline would depend on whether the company has appointed a tax representative and/or its FYE. If the company has not appointed a tax representative, it will have no extension of submission regardless of its FYE and has to file its PTR within one month from the issue date.
Normally, your auditors will also act as the tax representative of your company in Hong Kong. They will help your company to apply for extension of submission in due course. Below are the extended filing dates in respect of difference FYE:
|FYE||PTR Extended Due Date|
|From 1 April to 30 November (Accounting Date Code “N”)||No extension (Normally end of April)|
|From 1 December to 31 December (Accounting Date Code “D”)||Extension to 30 September|
|From 1 January to 31 March (Accounting Date Code “M”)||Extension to 30 November|
After you have filed your PTR, IRD will issue the Profits Tax Assessment and the Demand Note to the Company for settlement of profits tax a few months later.
Therefore, you may take the above into consideration and see whether the FYE which has the reporting deadline falls into the peak season of your industry and whether you would have any cash flow issue in the months that you need to pay the tax.
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The Common FYE in Hong Kong
In Hong Kong, the most common FYE are 31 December and 31 March. The former is the calendar year-end and the latter is the financial year-end of Hong Kong government. That is why IRD would offer extension for companies with these two FYE.
Change of FYE
If your company is a standalone company, it is rather free to choose FYE. However, if your company becomes a member company of a group (or for any other reasons), the company may wish to change its FYE. It is allowable but there are some limitations:
- The first financial year or period after the change of FYE must not be prolonged to more than 18 months;
- A company must not change its FYE if the period within which the company is required to present its audited financial statements and/or related documents in a general meeting for the such FYE is expired;
- Shareholders’ approval is needed if it is not the first time for the company to change and extend its FYE unless it is for the purpose of aligning with its holding company’s FYE; and
- A public company or a company limited by guarantee must report such change within 15 days with the Companies Registry by a prescribed form.
If all of this sounds complex and overwhelming, fret not.
Sleek is able to help with your company’s accounting and finances matters including business management. With our team of experts, we are confident to make the process as easy, seamless and convenient as possible so that you can reap the benefits you deserve!
Talk to us today if you need any further assistance in determining your FYE.