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Accounting & Reporting Obligations in Hong Kong

ACCOUNTING STANDARDS
 
Companies established in Hong Kong are required to keep and file financial statements in accordance with local accounting standards. With a view to attract foreign investors, Hong Kong Accounting Standards (“HKAS”) and Financial Reporting Standards (“HKFRS”) are largely aligned with internationally accepted standards (i.e. IFRS). Both are issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which is also responsible to grant certificates to certified public accountants in Hong Kong. 
 
The latest version of HKAS and HKFRS was adopted in January 2005, and comprises of 41 accounting standards, 9 financial reporting standards and several interpretations. In addition, the new Hong Kong Companies Ordinance, of 2014, provides specific simplified standards for Small and Medium Enterprises (“SME”). HK companies qualify as SMEs if their total income, assets and employees are below certain thresholds (i.e. HKD 100 million and 100 employees).


REPORTING OBLIGATIONS 

Hong Kong limited companies are required to fulfil three reporting requirements:
 

  • Annual Return:
Every year, within 42 days from the anniversary of incorporation, private companies established in Hong Kong shall submit an Annual Return to the Company Registry. The Annual Return records key information and changes occurred during the past year. The reports details, such as share capital, directors, shareholders, registered address, etc. It is generally prepared by the Company Secretary, who must be an individual residing in Hong Kong or a company registered therein.
 
  • Employer’s Return:
Every year in April, the Inland Revenue Department (“IRD”) issues Employer’s Returns to Hong Kong companies to report the salaries paid to the staff and subject to Hong Kong taxation. The returns are required to be completed and filed within 1 month of issue.
 
  • Profits Tax Return:
At the end of the financial year, Hong Kong companies are required to complete and submit a Profits Tax Return to the IRD. In Hong Kong, companies are free to set the date of the year end, however, most companies choose December 31st or March 31st as their financial year-end, in order to match up with their overseas parent company or with the Hong Kong government’s fiscal cut-off date (i.e. March 31st). The first year-end date of a newly incorporated company can be any date within 18 months from incorporation. The same year-end shall apply in subsequent years.
 
The IRD generally issues Profits Tax Returns on the 1st of April every year. The returns should normally be filed within 1 month from the issuance date. Extension of time can be granted on request, depending on the specific circumstances of the request.
 
Hong Kong companies shall file the Profits Tax Return with the following supporting documents:
a certified copy of the Balance Sheet, Auditor’s Report and Profit & Loss Account for the relevant period; a tax computation with supporting schedules showing how the assessable profits (or adjusted loss) has been computed; and  other documents and information as specified in the notes and instructions of the Profits Tax Return.


RECORD KEEPING OBLIGATIONS
 
As well as reporting obligations, HK companies must comply with record keeping obligations by law under both the Companies Ordinance and the Inland Revenue Ordinance. Below are the three main requirements:
 
  • Audited Annual Accounts & Directors’ Report:
The directors must prepare a statement each financial year that complies with the disclosure requirements of the Companies Ordinance.  The accounts must be audited by Hong Kong registered auditors and laid before the shareholders in the annual general meeting
 
  • Annual General Meeting:
Private companies established in Hong Kong must hold an annual general meeting (shareholder's meeting) within 9 months after the end of its accounting period. An annual general meeting must be held even though there may be no accounts available for presentation to the meeting and no other relevant business.
 
  • Obligation to keep business records for not less than seven years:
Any person or company carrying on a business in Hong Kong is required to keep sufficient records in English or Chinese for at least seven years. These include books of accounts, receipts and payments, income and expenditure vouchers and bank statements.

See also http://mybusiness-asia.com/en/structuring/accounting-for-my-business-in-asia​

November 2015

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