If you have formed a HK company, you will receive your first Profits Tax Return in around 18 months after the date of incorporation, and so you will need to well prepare your accounting records and submit your first audit report together with the completed tax return to the IRD within a 3 month submission period. Thereafter, you will receive your Profits Tax Return once a year, which means you have to prepare your accounting records and audit report every year.

Most HK companies will set their financial cut-off date as 31 December or 31 March. Some foreign companies prefer to set it as the end of December in order to match up with their overseas company accounts. If choosing the end of March, you could match up with the HK Government’s fiscal cut-off date. Of course, you could definitely choose another month as per your preference.

Certainly you can handle the accounting work by yourself, whilst your audit work needs to be managed by a HK Certified Public Accountant (CPA). The advantage of getting a professional firm to take care of your accounting reports is that it is very important to build a good foundation for your company’s financial report structure from the start (i.e. the first few years of your company), with proper Profit and Loss Accounts, Balance Sheet, Trial Balance and General Ledger prepared - with a benefit that will be felt later when the company develops into a more complicated business.

Some people might think they can handle the accounting work on their own and pass some simple bookkeeping records to the CPA for auditing use. However, it is infeasible as those bookkeeping records are not sufficient to process with an audit for your company; you must complete a full set of accounts including Profit & Loss Accounts, Balance Sheet, etc. in a proper way for the auditor to assess every year, for which a professional firm might be able to help you in one go. What’s more, if you have built your accounting and audit reports properly, you will stand a good chance to execute a tax efficiency plan in the financial reports when you start making profits at a later stage.

If your business has not yet commenced so far, you can report as ‘not yet commenced’ to the IRD by absence of an audit report. Once your company starts to run business and earn profits, you will have to submit back the first and subsequent years’ financial statements to the IRD and your company will be liable to profits tax.

If your business is operating but does not have any operational transactions or generate any income, you still need to file your Profits Tax Return with an audit report prepared. You can appoint a tax representative to help you in this part to make sure your tax return is being completed properly and submitted to the IRD on time.

It depends on which jurisdiction you have picked and whether your company involves business operations in HK or not. If you have chosen tax free jurisdictions like Seychelles or BVI, and your company does not involve a trade, profession or business in HK that has profits arising in or derived from HK, your audit report can be skipped (you won’t even receive the Profits Tax Return from the IRD since HK is not your picked jurisdiction).

However, if your offshore company involves business in HK that has profits derived from HK, you should report this to the IRD and your company will be liable to HK profits tax, which means you will need to prepare an audit report. As a smart move, no matter yours is a HK or offshore company, we recommend you to seek advice from an experienced tax consultant for him/her to devise a good tax planning for your company, in order to build a good foundation in the initial stage.

If you can’t finish your accounting and audit reports on time for Profits Tax fling, in the absence of a duly completed tax return, the IRD will issue an estimated assessment according to your previous tax return record if you have assessable profits before, to estimate the sum in respect of which you are chargeable to tax. In case you do not agree to the amount assessed, you must lodge an objection within one month after the date of the notice, otherwise, the assessment will most likely become a ‘final’ conclusion even if you do not require to pay such an amount of tax when a proper tax return is filed at the beginning.

Under this situation, if you still fail to furnish a completed tax return or make an incorrect return, even though the estimated assessment is issued, you could be subject to a fine of HK$10,000 and triple the amount of the tax undercharged as the penalty. You should deliver the outstanding return with the appropriate fine (if required) immediately if it has not been delivered. Failure to do so will result in receiving a summons from the Court to prosecute your company. We advise you to contact our specialists or the IRD as soon as possible if you face any of the above situations and do not know what to do about it.

Here you go! Check out the list below for your early preparation:

1. Copy of company registration documents including the updated Business Registration Certificate, Certificate of Incorporation, Articles of Association and Annual Return
2. Copy of bank statements and corporate / business credit card statements (if any)
3. Copy of all issued sales invoices, with corresponding receipt advices (if any)
4. Copy of all received purchase invoices, with corresponding payment advices (if any)
5. Copy of expense invoices / bills paid by cash on behalf of the Director(s) / staff (if any)
6. Copy of any contracts and agreements signed including:-
   • Employment contracts;,
   • Sales / purchase / service agreements; and
   • Tenancy agreements
7. Copy of original Profits Tax Return from the IRD (if already received)
8. 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)
9. Audited financial statements of the subsidiary companies (if applicable)
10. Copy of any special license(s) like SFC License and Property Agent License (if applicable)

By grouping the functions of company secretary and accounting / audit work together with registered address under one roof, your service provider shall remind you how to handle different letters from Government authorities timely when received. For example, if you have subscribed a virtual office address plan and appoint the service provider as your company secretary at the same time, when they receive Government letters like Business Registration Renewal Demand Note, you will be notified of the receipt of such letter with their advice provided on how to handle it properly. As a result, you shall not miss any important Government letters with this close follow-up, especially those requiring immediate actions.

Furthermore, if you use their accounting and audit arrangement services too, they shall remind you when tax filing letters like Employer’s Return or Profits Tax Return are being sent to you, and suggest the correct approach to handle all these before the filing deadline to prevent you from facing Government penalties due to late submission. Of course, your audit reports shall be well ready in advance for submitting together with the completed Profits Tax Return on time.

In such case, when getting professional help from a reliable service provider, there is no need for you to waste time communicating with different parties which might end up with lengthened process, delayed submission, missing documents or even late penalties. What’s more, for now, if you use our company secretarial services, you will be entitled to an exclusive 10% discount on our accounting services and audit arrangement.