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Essential Accounting & Auditing Tips for Hong Kong Businesses

No matter what stage your company is currently in, accounting, auditing, and tax filings are important aspects of the business that you shouldn’t neglect. Although it isn’t the most exciting topic, it is something that you should consider from the moment you start your business. Procrastinating and a lack of understanding in this area can cost you a lot of unnecessary expenses. This article will provide you an overview of essential auditing and accounting services in Hong Kong for your business entity.

accounting tips Hong Kong

Hong Kong Accounting and Auditing Standards

If you are interested in doing business in Hong Kong, then the first thing you need to know about are accounting, auditing standards, and bookkeeping in Hong Kong in order to stay away from any penalties for incorrect tax filings and any legal issues down the road.

Due to its exceptionally low level of corruption, and the free flow of information, Hong Kong stands apart from many other Asian countries and territories. Since the 1970s, the territory has striven to enforce a multitude of anti-corruption laws and set up an anti-corruption watchdog, The Independent Commission Against Corruption, which is mandated to deal with both the private and public sector in corruption. That’s why CPA’s plays a vital role while doing business in Hong Kong’s industry.

Being empowered by the PAO, the Hong Kong Institute of Certified Public Accountants (HKICPA) is used to create and issue Hong Kong Standards on Auditing, Quality Control, Assurance, and Related Services for further submission in a yearly tax assessment by the Inland Revenue Department. Hence, accounting and auditing standards must be observed and applied by members of the HKICPA.

Preparing & Submitting your first HK company audit report to the IRD

The financial year starts on April 1st and ends on March 31st of the next year. If you have formed a Hong Kong company, then within the 18 months of the incorporation of your business, the Inland Revenue Department will issue a letter requesting the submission and preparation of a Profit Tax return (PTR) form.

Therefore, you need to prepare the records of your accounts and submit your first audit report together with the completed tax return to the IRD within a three month from the PTR issuance date. Once you submit the records of your company to the IRD, then you will receive your PTR form annually, which means that you have to prepare your audit report and accounting records every year.

During this period, every company is required to appoint an auditor and accountant in Hong Kong to inspect the company’s accounts, provide the bank statements, and support all the contracts and invoices for incoming and outgoing transactions.

Deciding Financial Cut off Date for your Hong Kong Business

Most Hong Kong companies set their financial cut-off date as December 31st or March 31st. Some offshore companies also prefer to set financial cut off date at the end of December in order to meet requirements with their overseas company accounts. However, there is no requirement for a company’s financial year end, and it’s up to the company to decide when it will be.

So, if you are facing the problem of deciding the best date for your company’s financial year end, then you can consider the date at the end of March. By selecting March 31st date, you could easily match with the Hong Kong Government’s fiscal cut-off date. Otherwise, you could choose another month as per your preference, or take the help from accountants in Hong Kong to advise you on how comply with all the taxation requirements.

What happens if I miss a Profits Tax Return (PTR) filing?

You may be worried about missing the date for filing your PTR while reporting your accounting, auditing reports, and bookkeeping in Hong Kong. However don’t stress too much, as there are always options to get your tax filing done for your company.

If you know that your tax filing is or will be late, the best thing to do is to collect all your financial documents, and coordinate with your CPA on what documents they need to complete the audit of the financial year. Normally the longest process to an audit is preparing all the documentation of the company accounts. The CPA may even be able to request the Hong Kong IRD to re-consider any penalties imposed on the company, especially if you are not from Hong Kong.

If your company’s filings is far overdue, and you are not sure on how to get your company back in compliance with the tax laws, it’s best to first find out which year of the PTR you have missed. Then after gathering all the company’s accounting documents, get in contact with a CPA to see the best approach for filing all your tax filings.

In some cases of way overdue tax filings, the IRD will impose stricter penalties and even court summons of the directors for non-compliance of tax laws. In the end, the company can even be stricken off (closed down), so it’s best to get everything organized if you are late on your PTR filings.

Checklist and Required Documents needed for an Audit?

When your tax return is audited, the IRS will ask to see the specific records and documents of your company accounts. Here is a checklist of the required documents that you need for an audit report:

  • Copy of bank statements and corporate/business credit card statements, if any.
  • Copy of expense invoices/bills paid by cash on behalf of the Director(s) / staff (if any).
  • Audited financial statements of the subsidiary companies (if applicable)
  • Copy of company registration documents including the updated Business Registration Certificate, Certificate of Incorporation, Articles of Association and Annual Return.
  • Copy of original Profits Tax Return from the IRD (if already received).
  • Copy of all received purchase invoices, with corresponding payment advice (if any).
  • Copy of any contracts and agreements signed including:-

1. Sales / purchase / service agreements
2. Tenancy agreements
3. Employment contracts

  • Copy of all issued sales invoices, with corresponding receipt (if any).
  • Stock list as of the accounting cut-off date, with stock details including stock item name, quantity, unit price by purchase cost and stock value (if applicable).

Can an Audit Report be skipped if I set up an offshore company?

If you own an offshore company in Hong Kong that has derived profits from Hong Kong, then you should report this to the IRD, and your company will be liable to Hong Kong profits tax, which means that you will need to prepare an audit report.

No matter whether you own an offshore company or Hong Kong company, it is always advisable to seek advice from an experienced tax consultant or accountants in Hong Kong to develop an excellent tax planning for your company in order to build a good foundation in the initial stages.

What is the most popular accounting software used by Hong Kong businesses?

If you have set up a company in Hong Kong and wondering how you will manage your accountant services in Hong Kong, then you need to find out the most popular accounting software. So, the question is what is the best online accounting solution for your business entity? Let’s dig into the
top accounting software and see what is the best one for you.

1. Quickbooks Online Cloud Accounting

The most popular choice in online cloud accounting software for accountant services in Hong Kong is QuickBooks online. With the advent of technology and global networks, it is the leading cloud accounting software for small business to medium-sized businesses. This software will not only help you in tracking your business expenses, but it would also assist you in eliminating data entry so that you can get back to your business faster.

There are two ways to use the benefits of Intuit’s Quickbooks software- the cloud version and the desktop version. The desktop version is the original product of Quickbooks, with software you download and install on your computer. And with the cloud software, everything is stored online and updated in real time, so you don’t have to handle with any version upgrades to your accounts.

2. Xero Online Accounting

The next choice for keeping all reports of the accounting, auditing, and bookkeeping in Hong Kong is Xero online accounting software. It is a product-based and online centered application which is built online and lets you manage your business accounts in the cloud. Being based on a ‘software as a service’ (SaaS) model, you need to pay a monthly fee to use it. It is designed for small to medium-sized businesses.

This software will allow you to perform a variety of crucial accounting tasks online such as reconciling items, running a payroll, managing expenses and generating financial reports. However, the drawback with this software is that it doesn’t integrate with HSBC in Hong Kong. So, if you are willing to work with an online bookkeeper in Hong Kong, then you would need to add them as a user to your online business banking, or you can also send them your monthly statements by email or Dropbox.

accounting and auditing hong kong

Can I Handle My Company Accounting & Audit Work Myself

Yes, you can handle the accountant services in Hong Kong for your business by yourself. However, your audit work needs to be managed by a Hong Kong Certified Public Accountant (CPA). This is a requirement from the Hong Kong government that company accounts must be audited and the CPA submit their Audit Report of the company to calculate any profits taxes for the company.

In the earliest period of your business, you need to have a Balance Sheet, Profit and Loss account, General Ledger and Trial Balance, so you can make sure all your accounts are in order and comply with the accounting standards in Hong Kong. Some entrepreneurs even handle the accounting in Hong Kong on their own and pass some simple bookkeeping records to the CPA for auditing use.

If you’re more inclined to do everything on your own, you can conduct your company’s financial statements and submit these to your auditor at the end of the financial year. If you have questions for your company’s accounts, with the help of a professional firm, you can organize your company’s finances and build your accounting reports properly.

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What income is taxable in Hong Kong?

Tax collections, accounting, and auditing reports are essential in every country, and this is no exception in Hong Kong. Hong Kong is highly sought after for businesses for its lower taxes and simple taxation structure. Hong Kong does not have any capital gains tax, dividend tax, sales tax, interest tax, and limited import taxes. Hong Kong has three main types of income namely:

  • Business or trading profits
  • Employment or office income
  • Rental income from property

These simplified tax regulations and straightforward taxation establish Hong Kong as a booming business and investment center not only in Asia but around the world. This is essential for startups and companies who are conducting businesses internationally. And the most defining aspects of Hong Kong taxation is the territorial corporate tax system.

Territorial Corporate Tax System

Hong Kong follows a territorial corporate tax system; tax is levied only on profits arising in or derived from carrying on a profession, trade, or business in Hong Kong. The territorial corporate system doesn’t differentiate between non-residents and residents of Hong Kong. Therefore, Hong Kong companies would only be taxed on their profits from business activities in Hong Kong.

Are you looking for professional advice for your HK business accounting or auditing?

In order to comply with Hong Kong Companies Ordinance requirements, every incorporated company in Hong Kong must prepare annual reports containing Balance Sheets, Profit and Loss accounts and maintain proper books of accounts. In addition to this, these financial statements need to be audited by a Hong Kong certified public accountant.

So, if you are setting up a business in Hong Kong and would like assistance with your bookkeeping or accounts in Hong Kong, you can contact Startupr.

Startupr will not only provide you assistance in accounting or taxation matters you may have in regards to your company, but it will also help you in managing your future business transactions in Hong Kong. Feel free to contact us at Startupr for a free quotation or advice on your accounts!