GSL / Foreign Companies Audit / Audit Hong Kong

Hong Kong company audit, financial statements, accounting, consulting in Hong Kong

Hong Kong (Special Administrative Region of the People’s Republic of China) is the largest financial centre in the world. The legal system based on English common law, proximity to mainland China and no tax on profits sourced outside Hong Kong attract an increasing number of owners of various businesses and stimulate incorporation of Hong Kong companies. All Hong Kong registered companies are required to file with the Hong Kong tax office an annual tax return accompanied by audited financial statements for the relevant period.

Expand description »
Service packages Legislation Tax System Audit Services
Submission of a nil tax return (for dormant companies)
990 USD
Preparation of accounts and audit (for active companies)

From USD 1 900

USD 100-400 per hour
Support during tax audits

From USD 1 200

USD 100-400 per hour
Submission of Employer's Return (report on employees)

The fee depends on the number of employees

from 365 USD
Deregistration of a company (Strike off)
2 750 USD
Apostille of financial statements (if necessary)
from 340 USD

Price Calculator

The calculator allows you to calculate the approximate cost of maintenance of accounting services to support and audit the company.

Calculate
Your Consultant
Поиск консультанта...

Поиск консультанта...

General requirements

The current corporate and tax legislation of the Hong Kong Special Administrative Region of the People’s Republic of China (“Hong Kong”) requires all companies registered in Hong Kong to annually file the following documents with the Hong Kong Inland Revenue Department:

  • Reports and Financial Statements with an Auditor’s report by a local certified auditor;
  • Profits Tax Return;
  • Employer’s Return of Remuneration and Pensions;
  • Annual General Meeting resolution.

Types of accounts

  1. Management accounts
  2. Accounts of a dormant company (tax return)
  3. Audited accounts of companies operating outside Hong Kong
  4. Audited accounts of companies operating in Hong Kong

Audit

The Companies Ordinance states that financial statements of all companies must be audited.

The auditor must be a member of the Hong Kong Institute of Certified Public Accountants and hold an audit licence.

Exemption from audit is only available to dormant companies. Preparing audited financial statements for a dormant company is not mandatory until the company has started doing business.

A dormant Hong Kong company is only required to file a tax return.

The main criterion for qualifying as dormant is the absence of any transactions that must be shown in the accounting records.

The below table allows to determine which category, dormant or active, a company falls into.

Criteria
Dormant
Active
Bank accounts (including a minimum number of transactions; the only exception is fees charged by the bank)
no
yes
Cash settlements
no
yes
Contribution to the authorized capital of other entities
no
yes
Other investments
no
yes
Agreements made (for purchase and sale of goods/services, for acquisition of intellectual property, loan agreements, etc.)
no
yes
Invoices received or issued (except invoices for company administration, such as GSL invoices)
no
yes
There are none of the above transaction. The company does not generate any profit. The company’s only expenses are invoices for its administration.
yes
no

Period for preparing and filing financial statements

The first financial period of a company starts on the incorporation date and can last from 12 to 18 months. The end of the first financial period is normally the last day of the month in which the company was registered, i.e. if the incorporation date is 5 December 2019, the first financial period ends on 31 December 2020. However, the company can choose to set a different end date of the first financial period. Subsequent financial periods will last 12 months.

The tax year (year of assessment) ends on 31 March.

The Hong Kong Inland Revenue Department (IRD) issues profits tax returns (PTR) in bulk on the first business day of April each year. The PTR must be filed with the IRD within 1 month of the date printed on the document (date of issue).

However, the deadline for filing a PTR can be extended in some cases. To do this, it is necessary to check the code specified on the tax return:

Accounting date
PTR code
Filing date
1 April – 30 November
"N" Code
No extension
1 – 31 December
"D" Code
15 August
1 January – 31 March
"M" Code
15 November

For new companies, the first return arrives 12-18 months after the date of incorporation, the second and subsequent returns – on random dates after the filing of the first tax return, regardless of whether the company is dormant or not.

The deadline for submitting the first PTR is 4 months from the date specified on it.

Penalty for late filing

Penalty for late filing of financial statements

A Hong Kong company does not incur a penalty for late filing of financial statements, however, audited financial statements data are required to file a tax return.

Penalty for late filing of a tax return

Late filing of a Hong Kong tax return is an offence and is subject to penalties.

If the tax return is not filed on time, the IRD issues a notice charging a fine of HKD 1200 (approx. USD 160).

If the tax return is filed no more than six months late, the fine increases to approx. USD 360 (if converting from Hong Kong to US dollars).

If the tax return is filed more than six months late, the IRD sends a letter summoning a representative of the company to court to explain the reasons for not filing a tax return. As a result of the hearing, the court may charge a fine of up to HKD 10,000 (approx. USD 1300) plus three times the amount of tax due in the reporting period.

If a company fails to file its tax return on time (with financial statements attached), and the previous period reports showed profit, the IRD has the right to demand an advance payment of profits tax, even if the company operates outside Hong Kong and, consequently, is exempt from tax on its profits. The current profits tax rate in Hong Kong is 16.5%.

Penalty for late filing of an employer’s return

Late filing of a Hong Kong employer’s return is an offence and is subject to penalties.

Late filing of the return carries a fine starting from HKD 2400 (approx. USD 310). A filing delay in the next year will increase the fine.

Consolidated financial statements

The Companies Ordinance requires all Hong Kong companies that have subsidiaries to prepare and submit consolidated financial statements.

Subsidiaries are companies that are more than 50% owned by another entity. There are cases where a company owned 50% or less is considered to be a subsidiary if it is controlled by the parent company. A company controls a subsidiary if the following conditions are met:

  • a company has the power to govern the financial and operating policies of a subsidiary;
  • a company has the power to appoint or remove the majority of the members of the board of directors of a subsidiary;
  • a company has the majority of votes at meetings of the board of directors of a subsidiary.

A company is exempt from preparing consolidated financial statements if its parent company prepares consolidated financial statements.

In practice, many companies do not prepare consolidated financial statements. In this case, the auditor’s report is issued with the following reservation:

“The company has not prepared consolidated financial statements in accordance with section 9 of the Hong Kong Financial Reporting Standard for Private Entities issued by the Hong Kong Institute of Certified Public Accountants and in compliance with the Companies Ordinance. In our opinion, these financial statements do not contain enough information about the subsidiary to give a true and fair view of the state of affairs of the group as at … (end date of the reporting period).”

This is not an obstacle to filing the financial statements: the tax authorities accept them with such a reservation. However, if the financial statements are to be circulated to a bank or potential investors or other stakeholders, this reservation in the statements may not be acceptable.

To prepare consolidated financial statements, it is necessary to provide the audited financial statements of a subsidiary. If a subsidiary cannot provide audited financial statements, its financial statements will be checked by Hong Kong auditors.

Need a consultation from a specialist?
Share on social media:

Banks of Hong-Kong

Bank
The cost of opening an account, $
Global rating
Countrywide rating
GSL rating
RU EN