Financial Management in Hong Kong
The accounting requirements in Hong Kong can be quite similar to that you may have already been familiar with when doing business overseas, but slight differences still exist. Professional accountants can provide analysis and assistance to improve corporate management level and overall profitability while meeting local government regulations.
In addition to monthly financial recording, annual financial statements need to be audited by a CPA, following the “Hong Kong Accounting Standards and Auditing Standards," as required by the Companies Ordinance in Hong Kong to verify the financial status of your company.
With strict regulation on taxation, carefully planned tax service is crucial regarding running your company and doing business in Hong Kong.
In conclusion, an integrated solution package covering accounting, auditing, and taxation services will greatly benefit your operation in Hong Kong. That’s why Hongda offers a Hong Kong company annual package to take care of financial challenges you may face.
The requirements for Financial Management
Company Accounting in Hong Kong
There is no compulsory requirement for the frequency of Hong Kong company financial accounting; the financial statements can be published on a quarterly or even annual basis. The frequency of publishing financial history depends on the actual operation situation and the necessity of issuing timely updated financial statements to reflect business progress.
Company Tax Compliance in Hong Kong
Hong Kong is considered one of the most tax-friendly areas globally, and only three types of direct taxes are imposed:
- Corporate profits tax: limited liability companies can enjoy a preferential rate of 8.25% for the first 2 million HKD of corporate income, followed by a 16.5% corporate profit tax ratio for subsequent assessable incomes. You will only need to report profits tax once annually.
- Personal salaries tax: charged based on your individual income obtained from employment, offices or duty performing in Hong Kong when your income exceeds the non-chargeable allowance;
- Property tax: tax obligations of a property owner who derived rental income from letting properties situated in Hong Kong.
Company Annual Auditing in Hong Kong
Based on the regulations of the Companies Ordinance (CO) and Inland Revenue Ordinance of the Hong Kong Company Registry, limited liability companies need to take auditing each year. According to Article 122 of the Companies Ordinance, annual financial statements of all limited liability companies registered in Hong Kong need to be inspected and audited by CPAs. The Inland Revenue Ordinance also requires an audited financial report and statement for the annual tax declaration.
The Inland Revenue Department will deliver profit tax returns to all limited liability companies in Hong Kong, and tax declaration forms together with auditing reports issued by a Hong Kong certified practicing accountant (CPA) need to be submitted within a given period. In general cases, a company will receive its first profit tax return 18 months after establishment and needs to submit forms in 3 months. A notice of payment of profits tax from the Inland Revenue Department will be delivered if a profitable situation is presented.
By performing Hong Kong company auditing, you can also:
- Support Hong Kong bank account maintenance: as the requirement of anti-money laundering around the globe, it’s becoming more difficult to register and get approval of opening a bank account. As a corporate bank account is a must-have condition for the company to operate, you must demonstrate that you are fully compliant and free of risks by providing auditing reports when applying for a Hong Kong bank account.
- At the same time, an auditing report from the bank account owner for confirmation is required should the bank expresses any doubt about the account during the annual account examination and maintenance;
- Present to shareholders meeting: a well-organized auditing report is an evidence of your company’s financial status to be presented to shareholders so that they will form a clear concept of the actual operation condition;
- Enhance public credibility: passing annual financial auditing is a convincing proof to demonstrate that your company is continuously operating in a legal way and can enhance credibility and reputation to the public and governments, which is crucial for listed companies;
- Benefit your Hong Kong permanent residence application and bank loan taking;
Hongda’s Hong Kong Company Annual Package
From April 1, 2023, the Hong Kong Inland Revenue Department will no longer accept submission of zero-declaration tax returns. Companies without actual operation will still need to provide a no-operation auditing report, issued by a qualified Hong Kong CPA. In other words, auditing reports must be submitted together with profits tax returns in all cases from April 1, 2023, before which a zero profits tax returns declaration was accepted, remarking that the era of zero tax returns was gone.
To provide customized financial solutions to our clients in different stages of development with unique requirements, Hongda now formulates various annual financial services packages, covering professional, accurate, and compliant accounting, auditing, and taxation services. With Hongda’s assistance, you will not need to worry about your financial and tax compliance anymore.
To enjoy Hongda's professional service, you will only need to prepare:
- Original sales / service contracts, labor contracts, renting contracts;
- Invoices or receipts of purchase and sales;
- Bank statements ;
- Copy of special licenses, such as SFA or EAA license if applicable;
- Copy of Certificate of Incorporation;
- Copy of recent Business Registration Certificate;
- Copy of company’s articles of association;
When is the Tax Declaration Deadline?
There will be a slight difference for auditing each year. In general cases, the Inland Revenue Department will deliver profit tax returns to all limited liability companies in Hong Kong on the first working day of April.
When you receive a profit tax return, you should complete forms within a month and submit them for tax declaration, together with your audited report. Delayed tax returns may result in fines, court summonses, and even imprisonment.
| Year-End Dates Fall Within | Standard Deadline | Extended Deadline |
| April 1 – November 30 (N code) | May 2 of the next year | No extension |
| December 1 – 31 (D code) | August 15 of the next year | No extension |
| January 1 – March 31 (D code) | November 15 of the same year | January 13 of next year for companies suffering statutory loss *Application must be lodged on or before 31. October |
Hong Kong Offshore Tax Exemption
What Is Offshore Tax Exemption in Hong Kong?
If your Hong Kong company’s operation activities take place entirely outside of Hong Kong and result in foreign-sourced profits, it will be qualified to enjoy tax-free offshore profits 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.
Qualifications To Apply for Offshore Tax Exemption
So far there is no official definition of the term “offshore profits” released by the Inland Revenue Department of Hong Kong, leading to a lack of generally accepted principal in practices. Elaboration is necessary to determine whether the company's profits arise in or are derived from Hong Kong, depending on the actual situation of each case. A general case that a company registered in Hong Kong with headquarter in the Chinese mainland applying for offshore tax exemption is that:
A company on the Chinese mainland is seeking to develop its international business. Attracted by the outstanding business environment in Hong Kong, it is planning to register a trading company there. The trading company does not have clients and suppliers in Hong Kong and will not sign any contracts in Hong Kong, receive & deliver any goods, apply for customs declaration & clearance, and is not planning to hire any employees due to a lack of physical office in Hong Kong. In this case, the company will be able to try for a tax exemption application.
For more information about offshore income tax exemption, please read our article: How to Declare Offshore Income Tax Exemption in Hong Kong.
