This guide unpacks the latest regulations, extended deadlines, and strategies to streamline your 2024/25 tax filing.
Section 1: Key Legal Compliance Requirements Changes in 2025
1. Stricter Review of Offshore Tax Exemption Applications
Claims for exemptions from offshore taxes are now being closely examined by the Hong Kong Inland Revenue Department. Before applying, businesses must confirm the following requirements to ensure legal compliance:
- No Physical Operations in Hong Kong:
- Goods are not declared, received, or shipped through Hong Kong customs.
- No physical office or employees hired in Hong Kong.
- The clients and suppliers are not based in Hong Kong.
- Contracts pertaining to offshore are negotiated and signed outside of Hong Kong.
- Hong Kong authorities do not retain any operational records, such as contracts or transaction logs.
Determining whether the core business activities (such as contract signings and board decisions) are carried out outside of Hong Kong is now the top review element by the IRD, attempting to stop tax evasion by abusing offshore exemptions.
2. Escalated Penalties for Late Tax Filing
Hong Kong authorities have implemented stricter penalties for overdue tax submissions. A first-time offense penalty of HKD 1,200 will be levied. Failure to resolve the issue within 14 days increases the penalty to HKD 3,000, with potential legal prosecution. If a company repeats the overdue submission, an immediate penalty of HKD 3,000 will be applied, which will rise to HKD 8,000 if unresolved within 14 days. Further non-compliance may result in fines up to HKD 50,000, recovery of three times the unpaid tax amount, and criminal charges including imprisonment or travel restrictions
Section 2: 2025 Tax Filing Procedures for Hong Kong Companies
Step 1: Accounting Preparation (3-6 months in advance)
The first step in the tax filing process for a Hong Kong company is to organize the financial data for the entire year and generate financial statements that comply with Hong Kong Financial Reporting Standards (HKFRS).
The key materials you will need to prepare include:
- Original Documents: invoices, receipts, and bank statements (with transaction summaries clearly marked).
- Ledger Entries: general ledger, detailed ledgers, and cash journals (preferably in Excel or exported from accounting software).
- Intercompany Transactions: records of transactions with subsidiaries or shareholders, including agreements for related party dealings.
- Fixed Asset List: purchase contracts and depreciation schedules.
If you're interested in a comprehensive audit checklist for Hongda, feel free to click the link here to download it.
Step 2: Audit Compliance (1-2 months)
Once you’ve prepared your company’s financial records, you will need to engage a licensed CPA firm in Hong Kong. We recommend choosing a firm familiar with your industry, as each CPA firm might specialize in different areas.
The materials needed for the audit include:
- Signed Financial Statements (in PDF/A format).
- Bank Account Authorization Letter (to allow the auditor to verify account transactions).
- Board Meeting Minutes (approving the financial statements).
If the CPA does not identify any issues that need your attention, they will issue a clean audit report. At that point, you can proceed with filling out and submitting the tax forms.
Step 3: Filling Out the Tax Forms (BIR Forms)
You can log into the Hong Kong Inland Revenue Department's (IRD) "eTax" system to complete the BIR forms online. Once the forms are filled out and the audit report has been submitted, the tax department will begin its detailed review process.
- Preliminary Review by the Tax Authority: The IRD will initially review the tax returns and audit report to determine whether the company has claimed offshore income.
- Send Enquiry Letter: If the IRD has any questions regarding the company's declaration of offshore income, they will typically send an enquiry letter, which may arrive a few weeks or even months after submission. This letter will request further explanations or supporting documents from the company. As it will be sent to the company’s registered address or the address of the company secretary, so it's crucial to ensure that the address is valid and that someone is available to receive it.
Typically, the inquiry letter will include questions about the company's main business operations and business model, such as:
- What is the nature of the company’s core business?
- If there is no office or employees in Hong Kong, where is the company's operational center located? Can you provide employee contracts and proof of salary payments from that country?
- Does the company sign contracts, deliver goods, or provide services in Hong Kong?
- Please provide relevant supporting documents, such as contracts, invoices, bank statements, and communications records.
The tax department usually requests a written response within a month. If more time is needed, you can apply for an extension (with a reasonable explanation). Please ensure your response is thorough, truthful, and logically clear, and that you include all necessary supporting documents. The response should align with your company’s actual operations and avoid contradicting the audit report. Also, make sure the documents are in both Chinese and English, or at least in English, for the convenience of the tax department. If you disagree with the IRD’s conclusions, you may file an appeal or provide further explanations.
If you lack experience in this area, we strongly recommend working with a tax consultant who specializes in offshore tax filings, such as those at Hongda, to help craft the response. This will help avoid any misunderstandings or inappropriate disclosures that could mislead the tax authority.
Step 4: Submission and Follow-up
Once you submit your response, the system will generate a receipt number (make sure to keep it for future reference). The tax department will send you a confirmation email within 14 business days.
If your company is selected for further review during the tax assessment stage, you will be required to provide additional documents, such as board meeting minutes or email correspondence, within 7 days.
Section 3: Consequences of Non-Compliance with Hong Kong Tax Obligations
1. What happens if I miss the tax return filing deadline?
Under Section 51 of Hong Kong’s Inland Revenue Ordinance, failing to submit your Profits Tax Return (PTR) on time triggers a tiered enforcement process. First, the Inland Revenue Department (IRD) may impose a penalty of up to HKD 10,000. But it doesn’t stop there – they can also levy an additional tax charge equivalent to three times the unpaid tax amount.
If you continue to delay, the IRD has the authority to issue an Estimated Assessment based on historical data or industry benchmarks. Once issued, you’re required to pay this assessed amount immediately, even if you dispute it. Worst-case scenario? Repeated non-compliance could lead to criminal prosecution in the Magistrates’ Court. Last year, a logistics company faced a HKD 8,000 fine after ignoring two reminders – don’t let this be you.
2. What if I file the tax return but forget the audit report?
For active limited companies, submitting a tax return without the accompanying audited financial statements is like handing in half a report card – the IRD treats it as “incomplete submission”, equivalent to not filing at all.
This means you’ll face the same penalties as late filers: fines, additional taxes, and potential estimated assessments. If you ignore follow-up notices, the IRD may escalate the matter as willful non-compliance, which could tarnish your corporate record. Pro tip: Mark your auditor’s deadline two weeks earlier than the actual due date to build in buffer time.
3. What happens after ignoring multiple IRD reminders?
The IRD typically sends 1-2 formal reminders (Reminder Letters or Notices). If these go unanswered, they’ll proceed to legal action – no more warnings. In severe cases, particularly those involving suspected fraud, the Department of Justice may initiate criminal proceedings.
Penalties escalate sharply here: maximum fines, recovery of owed taxes with interest, and in extreme cases (like deliberate tax evasion), imprisonment. A recent case saw a retail chain director receive a six-month suspended sentence for ignoring three consecutive notices.
4. Can the IRD really assess my taxes without my records?
Yes – and they will. Under Section 59 of the Ordinance, the IRD can issue an Estimated Assessment if you fail to provide proper documentation. Once issued:
- You must pay the assessed amount within the stipulated timeframe.
- To challenge it, submit a formal Objection within 30 days, backed by complete financial records and a detailed explanation. Miss this window, and the assessment becomes binding.
- Continued non-payment may lead to asset freezes or bank account seizures. We recently helped a client reverse a HKD 2.1 million estimated assessment by providing three years’ worth of archived invoices – proper record-keeping pays off.
Section 4: Other Questions You May Be Interested in
1. Does a company with no operations need to file taxes?
Yes, it does. Even if there is no actual business activity, the company is still required to submit an audit report confirming no operations (prepared by a licensed Hong Kong accountant) and complete the tax return. Starting in 2023, the tax authority no longer accepts "zero filings" without submitting an audit report, and failure to do so may be considered non-compliant.
2. How can a company apply for a tax filing extension?
Extension Conditions: Companies with a financial year ending on either December 31st or March 31st can apply for an extension of up to 8 months.
How to Apply: The extension request must be submitted via the "eTax" system, and you will need to include an audit progress report as part of the application.
