Limited companies registered in Hong Kong must fulfill several duties annually, namely accounting, auditing, tax filing, annual return, and updating employer's declaration and business registration certificate, to maintain the company's legal status. Failure to do so will trigger compliance issues; the Hong Kong Government has the authority to penalize non-compliant behavior.
We recently noted that the Hong Kong Inland Revenue Department (IRD) has taken active measures in tax collection and promotes compliance with laws through strict enforcement measures. To reduce the risk of non-compliance with the Inland Revenue Ordinance, we recommend taxpayers conduct self-checks annually in the following areas:
Record Keeping
Section 51C of the Inland Revenue Ordinance (IRO) stipulates: “Persons carrying on a trade or business in Hong Kong must record their income and expenses in English or Chinese to ascertain assessable profits at any time”. Failure to comply with these provisions without reasonable cause may result in a fine of up to HKD 100,000.
Audit Report and Profits Tax Return
The two most important tasks a Hong Kong limited company must perform annually are preparing an audit report and submitting a profits tax return, as this determines the amount of profits tax payable by the company. Delaying submission of audit reports, profits tax returns and/or profits tax computations to the IRD, or late payment of taxes, is subject to fines and/or legal action.
In Hong Kong, audit reports must be issued by a Certified Public Accountant (CPA) in Hong Kong according to Hong Kong accounting practices.
- Even if the company shows a loss based on its accounting records, it still requires an audit report to support the calculation of losses
- In certain cases, different results may arise.
The Hong Kong Inland Revenue Department generally issues the profits tax return within one month, and the data in the return must come from the audit report. The profits tax return can be complex and may take a considerable amount of time to complete.
