Guidance to the 2023/24 profits tax filing for Hong Kong companies

As an international financial hub, Hong Kong places stringent demands on corporate financial transparency and compliance. For the fiscal year 2023/2024, the Inland Revenue Department of Hong Kong has issued a large volume of tax forms, underscoring its focus on corporate financial management. This article will provide a detailed introduction to the accounting, auditing, and annual inspection processes for Hong Kong companies, aiding businesses in understanding and mastering the necessary compliance steps.

On April 2, 2024, the Inland Revenue Department issued approximately 220,000 profit tax returns, 120,000 property tax returns, and 310,000 employer's returns, marking the start of the tax season for 2023-2024 (source).

According to regulations from the Inland Revenue Department, companies are typically required to file their returns within one month of receiving their tax documents. However, the department also offers the option to apply for an extension under specific circumstances. It’s important to note that from April to September, accounting firms experience their peak period. As such, it is crucial for company operators in Hong Kong to arrange their tax filings and audits early to avoid the pitfalls of a tight schedule due to high demand.

In this blog, Hongda will provide a detailed explanation of the tax filing process for Hong Kong companies. We also want to emphasize the importance of maintaining year-round accounting, auditing, and tax compliance for the smooth operation of your business in Hong Kong!

Why profits tax filing is important to your Hong Kong company?

Annual audits and tax filings are crucial for companies registered in Hong Kong, ensuring they comply with legal requirements and maintain operational integrity. Here's why these processes are essential:

• Legal Requirement and Corporate Status: Annual audits are not only mandated by law but also serve as a declaration that the company remains active and meets the criteria to function as an independent legal entity. These audits involve updating vital company registration information such as directorships, shareholder details, and registered addresses, ensuring transparency and timeliness of the information.
• Tax Compliance and Financial Management: Filing taxes is critical to prevent potential audits and legal issues. It ensures that the company adheres to tax laws, avoiding penalties and interest on late submissions. Proper tax filing supports effective tax planning and strengthens financial management within the company.'

Failure to complete these procedures on time can lead to severe consequences, including:

• Fines: If a company fails to conduct its annual audits and file taxes, it will incur fines that increase with the length of the delay.
• Operational Restrictions: Essential operations like bank account openings may be impacted. Applications for such processes might be denied. Directors may also face travel restrictions or detainment by customs.
• Deregistration and Blacklisting: Prolonged non-compliance can lead to company deregistration and blacklisting of its directors and shareholders.
• Reputation Damage: Compliance with tax laws is a significant part of a company's reputation. Delays in filing taxes can harm relationships with investors, partners, and banks, affecting the company’s market presence and business opportunities.
• Legal Consequences: Continuous non-compliance can lead to severe legal repercussions, including court summons, lawsuits, or even imprisonment of company officials.

How do Hong Kong companies carry out annual tax filing?

The Inland Revenue Department customarily issues profit tax returns to all companies registered in Hong Kong on the first business day of April each year. According to standard regulations, companies are required to submit their profit tax returns within one month from the issue date stated on the tax form. The specific submission deadline is clearly marked on the front page of the tax return form. Generally, the specific deadline may vary depending on the company's financial year-end, tax arrangements, and whether an extension has been requested.

1. Due dates for filing the 2023/24 profits tax returns

2. Steps for annual tax filing for Hong Kong companies

• Preparing Financial Statements: After receiving the tax forms, companies need to prepare financial statements including the profit and loss statement, balance sheet, and cash flow statement. These should be prepared by an accountant in accordance with Hong Kong accounting standards.
• Conducting Audits: Except for small companies that are exempt from audits, most companies need to submit an audit report reviewed by a certified public accountant. The purpose of the audit is to verify the accuracy of the financial statements and the financial condition of the company.
• Filling Out the Tax Forms: Based on the audit report and financial statements, companies need to fill out the profit tax return, detailing their profit status and the amount of tax due. When necessary, forms related to tax reductions and exemptions must also be completed.
• Submitting the Tax Forms: After filling them out, companies must submit the tax forms and all related documents to the Inland Revenue Department by the specified deadline. Submission can be done either by paper mail or electronically, depending on the company’s preference.
• Waiting for Assessment: Once the tax forms are received, the Tax Authority will review the submitted information and calculate the tax payable. If the Tax Authority requires more information or has questions, they may contact the company for further inquiries or request additional documents.
• Paying Taxes: Once the assessment is complete, the company will receive a tax payment notification. Typically, if the assessed tax is higher than the prepaid tax, the company needs to pay the difference; if it is lower, they can apply for a refund.
• Handling Objections and Reviews: If the company disagrees with the tax assessment results, they can file an appeal or request a review from the Tax Authority within the specified time frame.

The tax filing process for Hong Kong companies involves three critical components:

1.    Accounting Process: Hong Kong companies engage in comprehensive accounting activities that include preparing key financial statements such as trial balances, profit and loss statements, and balance sheets. This preparation requires organizing all original documents and compiling detailed accounting records like vouchers, subsidiary ledgers, and general ledgers. Essential documents used in this process include the company's articles of association, business registration certificates, bank statements, payment and receipt vouchers, commercial invoices, purchase orders, and expense documents.

2.    Audit Process: Auditing in Hong Kong is conducted by licensed accountants to ensure the financial statements accurately reflect the company’s financial status. The audit is essential for complying with Hong Kong’s accounting and tax regulations. Audit reports, which must be approved by the company's shareholders or directors, are then submitted to the tax authorities. Audits are mandated under the Hong Kong Companies Ordinance, which requires all company accounts to be audited to provide a clear picture of the financial well-being to shareholders, directors, and the tax bureau. 

Audit results in Hong Kong can include:

• unqualified opinions (clean);
• qualified opinions (having certain reservations);
• adverse opinions (financial statements do not present a fair view);
• disclaimer of opinion (insufficient information to form an opinion).

For Hong Kong companies, obtaining an "unqualified opinion" from their accountant is highly desirable. An unqualified opinion indicates that the financial statements are presented fairly, in all material aspects, and comply with the applicable financial reporting framework. If a company receives an opinion other than unqualified, it suggests there may be issues with the company’s financials or tax compliance, which could raise concerns from the tax authorities. This situation can make the company more susceptible to scrutiny and potential questioning by the Inland Revenue Department.

3.    Tax Assessment and Follow-up: After the tax forms, accounting reports, and auditor's reports are submitted, the tax bureau assesses these documents within three months. If a company is found to be unprofitable or at a loss, the tax bureau issues a notification that no tax is due, and the loss can be carried forward to offset against future profits.

You might also be curious about the following questions

1.    Does a company that hasn't operated need to file taxes?

In Hong Kong, even if a company did not conduct any business activities during a specific fiscal year, it is still required to comply with audit and tax reporting obligations under the Companies Ordinance (Chapter 622 of the Hong Kong Laws). This means that the company must prepare financial statements and have them audited by an independent certified public accountant to ensure that they fairly reflect the company's financial status, even if these statements might show no business activities or income. If a company seeks an audit exemption, it must apply to the Hong Kong Companies Registry to be classified as a "dormant company." This typically involves submitting a special resolution stating that the company has not engaged in any business activities throughout the fiscal year. Only after this application is accepted can the company be recognized as dormant and potentially exempt from auditing.

Nevertheless, the company still needs to file an annual profit tax return, even just to report that there was no business income or profit. This is because the tax authorities need to record and verify the tax status of all companies, including those that are inactive.

2.    Does ‘not receiving a tax return’ mean you do not have to file taxes?
If a company experienced a loss in the previous fiscal year, the tax bureau might not automatically issue a profit tax return every year. However, this does not mean that the tax bureau will not require filing for that year in the future. If the company later receives a profit tax return for a specific year, it is responsible for submitting it to the tax bureau within one month from the issue date shown on the tax form.

According to tax laws, even if a profit tax return is not received, if the company achieved taxable profits during that year, it must still proactively request a tax form from the tax bureau and file it. This action ensures that the company complies with tax regulations and avoids potential legal consequences for not filing on time.

Hongda’s comprehensive accounting, auditing, and taxation services for companies in Hong Kong

With over 17 years of experience and a service center located in Tsim Sha Tsui, Hongda is committed to providing high-quality, professional services to ensure that client operations comply with the legal requirements of the Hong Kong Special Administrative Region throughout the year.

To assist clients in maintaining compliance, Hongda offers an annual service package for Hong Kong company accounting, auditing, and taxation services. This package is designed not only to facilitate compliance checks at specific times of the year but also to ensure that your operations and financial records meet high standards consistently. With Hongda's professional accounting team, potential financial risks are identified and resolved promptly, ensuring that financial issues are addressed well before tax deadlines.

Understanding and adhering to local tax and accounting regulations is crucial for companies operating in Hong Kong. By implementing proper accounting and auditing processes, companies can ensure the accuracy of their financial reports and avoid potential legal issues. Choosing Hongda as your financial partner can help your business remain competitive in the complex international market and achieve sustainable growth.

For more details on the services offered by Hongda Business Services, you can visit their service page here: Hongda Accounting, Auditing and Taxation Services.

Potential Available Incentive: Hong Kong Offshore Tax Exemption

If your Hong Kong company’s operation activities take place entirely outside of Hong Kong and resulted in foreign-sourced profits, it will be qualified to enjoy tax-free offshore profits tax granted by the Hong Kong tax authority. Hong Kong adopts a territorial source principle of tax, which means that only profits sourced in Hong Kong are taxable. This also means that even if your limited liability company is registered in Hong Kong, you can still declare offshore income and enjoy tax exemption as long as the operation profits are not sourced in Hong Kong.

For more information about offshore income tax exemption, please read our article: how to declare offshore income tax exemption in Hong Kong.

Conclusion

Navigating the annual tax filing season in Hong Kong requires a deep understanding of both the process and the importance of compliance. For Hong Kong companies, annual tax filings are not just a regulatory requirement but a critical measure to maintain financial health and transparency. The process involves detailed steps from preparing financial statements, undergoing audits, to filing the necessary tax forms. Each step ensures that the companies meet the Hong Kong Special Administrative Region’s stringent legal standards.

Moreover, with the introduction of incentives like the Hong Kong offshore tax exemption, companies have the opportunity to optimize their tax positions. However, these benefits also bring the need for meticulous documentation and precise reporting to leverage these exemptions effectively. Companies must provide accurate and comprehensive information to avoid any future disputes or inquiries from the Inland Revenue Department (IRD).

To better serve our clients and assist them in navigating the complexities of Hong Kong's tax and accounting requirements, Hongda invites you to visit our website and schedule a consultation meeting. Our team of experts will provide personalized guidance to help optimize your tax strategies and ensure compliance throughout the year. Whether you need detailed information on offshore tax exemptions or assistance with the intricate tax filing process, we are equipped to offer professional advice and support!