Hong Kong Basic Accounting and Taxation in Hong Kong
- Directors must prepare financial statements for each financial year that comply with Companies Ordinance.
- The financial statements must comply with applicable accounting standards issued or specified by the Hong Kong Institute of Certified Public Accountants.
- The financial statements must be audited.
- These requirements do not apply to a company that is dormant.
- There is no requirement to appoint an external accounting professional to prepare financial statements.
- The company’s financial statements can be prepared internally.
- The first accounting period is specified by the directors that falls within 18 months after the company’s incorporation date.
- Every subsequent accounting period is a period of 12 months after the end of the previous accounting period unless it is altered.
- The accounting period can be altered by a resolution of directors but the altered accounting period cannot be longer than 18 months.
- The financial statements should be audited by a Practising Certified Public Accountant in Hong Kong.
- It is the auditor’s responsibility to obtain sufficient documentation in order to issue the audit opinion according to the audit findings.
- The auditor reviews the financial statements and general ledger of business transactions together with supporting documents.
- The audited financial statements must include statement of financial position (balance sheet), auditor’s report, statement of comprehensive income (profit and loss account) and notes to the financial statements.
- The audited financial statements should be approved by the board of directors and adopted by the members of the company.
Requirements under Inland Revenue Ordinance
- Section 51C of the Inland Revenue Ordinance requires Hong Kong taxpayers to keep sufficient records in the English or Chinese language of income and expenditure to enable the assessable profits to be readily ascertained.
- Records include but not limited to:
- books of accounts recording receipts and payments, or income and expenditure;
- vouchers, bank statements, invoices, receipts;
- records of the assets and liabilities;
- records of all entries from day to day of all sums of money received and expended.
- Such records shall be retained for a period of not less than 7 years.
- Failure to comply with the above requirements without reasonable excuse may be liable to a maximum fine of HK$100,000.
- Business records by using a computer is acceptable.
- Keeping images of the original documents in CD-Roms or DVD-Roms are acceptable as an alternative to the keeping of the original documents themselves.
- The information after conversion should remain complete and unaltered.
- Taxpayer does not need to apply to the Inland Revenue Department before conversion of business records into electronic records.
- Where the source document is in the electronic form when it is created, it is already an electronic record.
- 3 direct taxes: Profits Tax, Salaries Tax and Property Tax
- Territorial basis of taxation: Taxable only if business profits, employment income and property rental income arising in or derived from Hong Kong
- No capital gains tax
- No VAT or GST
- Hong Kong has concluded more than 30 bilateral comprehensive tax treaties
Tax rate on corporate assessable profits
16.5% (8.25% for first HK$2 million of assessable profits if two-tier tax rates regime is elected)
Tax rate on assessable profits of unincorporated business
15% (7.5% for first HK$2 million of assessable profits if two-tier tax rates regime is elected)
Tax rate on capital gains
Tax rate on dividend distribution to shareholders
Tax rate on non-Hong Kong sourced income
Provisional tax may be charged based on the current year assessable profit and will be utilized for offsetting next year profits tax payable.
Accounting year ended
Between 1 April to 30 November (“N Code”)
2 May of the following year
Between 1 December to 31 December (“D Code”)
15 August of the following year
Between 1 January to 31 March (“M Code”)
15 November of the following year
First return of newly incorporated company
3 months from the date of issue of the return (around 18 months after the date of incorporation)
The documents to be submitted are as follow:
- Tax computation and supporting schedules
- Audited financial statements
- Profits Tax Return
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