As we mentioned in our previous article which introduces the Hong Kong Profits Tax, in order to complete your Profits Tax Return obligations, you will be required to submit your tax return to the Inland Revenue Department (“IRD”) alongside with your Audit Report. In this article, we will talk about the audit requirements and tax return filing in Hong Kong.
What you will learn from this article:
1. Filing Profits Tax Return to IRD
According to Hong Kong company law, every company formed in Hong Kong is required to submit a Profits Tax Return.
1.1. What is required to file the Profits Tax Return?
When submitting your Profits Tax Return to the IRD, the following documents should also be submitted as supporting documentation:
1.2. Dates to remember
Financial year: April 1st to March 31st of the following year.
Date of issue for Profit Tax Return: First working day of April every year*
Deadline for submission: 1 month from the day of issue*
*The first Profit Tax Return for newly incorporated businesses will be issued approximately 18 months after the date of incorporation. Such businesses are required to submit their tax return within a 3-month period from the date of issue which will be stated on the document.
2. Hong Kong Audit Requirements
All Hong Kong incorporated companies are statutorily required by the Companies Ordinance to audit their financial statements on a yearly basis.
These financial statements are essentially accounting documents prepared by a Certified Public Accountant (CPA) on behalf of a business, with the aim of providing financial accountability to the company’s stakeholders. For private companies, financial statements are not required to be filed on public records.
For corporate entities, financial statements are required and must be prepared, in order to comply with the disclosure requirements set out in the Hong Kong Companies Ordinance, Hong Kong’s Financial Reporting Standards’, and the Rules of The Stock Exchange of Hong Kong Limited for listed companies.
To comply with the Hong Kong Companies Ordinance, all companies should have accounting records for:
- All sums of money received or expended by the company and the matters in respect of which the receipt and expenditure takes place;
- All sales/service income and direct operating costs of the company;
- The assets and liabilities of the company.
Accounting records must be kept for seven years from the end of the financial year in which the last entry was made, or to which the last recorded matter relates.
Please note that, for businesses that operate offshore, the relevant supporting invoices and receipts, along with other relevant records, are still required to be kept.
In Hong Kong, only a Certified Public Accountant (CPA) is qualified to conduct an audit. In order for the CPA to perform a proper audit, correct management accounts are needed. In order to prepare for your audit, it is best practice to have a list of required documents prepared.
- Audited financial statements of subsidiary companies
- Copy of the original Profit Tax Return received from the IRD
- All applicable financial statements for the assessed period
- All sales/service agreements, employment contract, tenancy agreement for the assessed period
- All purchase invoices for the assessed period
- Receipt for all expenses for the assessed period
- Bank statements (The auditor might ask you to sign a confirmation form which will be sent to the bank to obtain the bank balance)
- All sales invoices with the corresponding receipt for the assessed period
- Copy of any special licenses, such as an SFC License or Property Agent License (if any)
- Copy of the company’s registration documents:
- Updated business registration certificate
- Incorporation certificate
- Articles of association
- Annual Return
3. What to Consider During the Accounting Process
While an audit must be performed by a CPA firm, accounting related tasks are something that can be performed by an in-house employee or by an external accounting firm. It is best to engage an external accounting firm who has demonstrated to have relevant accounting knowledge and qualifications. The qualifications and knowledge needed are dependent on the complexity of the business nature and operations.
Management accounts include a Profit and Loss Account, Balance Sheet, Trial Balance and General Ledger. It is advisable to maintain the habit of managing your accounts on a monthly basis, especially for those who have a lot of entries and a pile of supporting documents.
It is essential to submit well-organised accounts to your CPA. If your management accounts are disorganised and unclear, you may face a delay in getting your audit done (which also means additional charges from your CPA).
While accounting seems to be a tedious job, using cloud-based accounting systems like Xero can help you prepare the financial statements and manage your accounts with ease. Designed for SMEs, you can run a series of crucial accounting jobs online using Xero, such as running a payroll, managing expenses and generating financial reports.
In addition to audit service and being Xero’s official partner in Hong Kong, FastLane also provides professional services in performing the tax computation and filing with IRD. Talk to us today to learn how we can help you!
All in all, it is best to familiarize yourself with Hong Kong’s audit and tax return filing requirements in order to ensure your company does not engage in any non-compliance. As a licensed Hong Kong CPA firm, FastLane CPA’s team of qualified professionals can assist you in ensuring your company is compliant with all applicable reporting regulations. We aim to provide a quality and cost effective Hong Kong audit and tax engagement services!
Please contact the FastLane Group for a price quotation!