Our article series of '10 things to learn about...' heads into the tax season addressing accounting, annual audit and tax compliance.
1. Are all Hong Kong companies required to have audited accounts?
All companies incorporated in Hong Kong are required to appoint an auditor for each financial year in accordance with the Companies Ordinance. Further, the audit report forms part of the reporting documents the directors of a company must produce for the Annual General Meeting. Only dormant companies are exempt from the audit requirement. Dormant in this case refers exclusively to companies whose status is registered as dormant with the Companies Registry. The exemption to submit audited accounts together with the profits tax return for small corporations does not extend to the requirement to prepare audited accounts under the Companies Ordinance.
2. When does a company need to submit annual audited report?
A company does not need to file its audit report to the Companies Registry and there is no publication requirement for unlisted companies. The audit report however is required to be attached to the profits tax return and submitted to the Inland Revenue Department if the company’s revenue exceeds HKD2million or for any of the other specified reason does not qualify as small corporation. Aside from external submission, the directors are required to prepare the reporting documents, which includes the audit report, for presentation to the members of the company at its Annual General Meeting.
3. How do auditors charge?
Audit fees depend often on the estimated time involved in completing the audit engagement. In addition the auditor will often also consider their professional risk and exposure issuing an opinion. Good preparation and well prepared accounts can help to reduce the audit fee.
4. How long does it take to finish an annual audit?
The time frame to complete an audit depends on various factors, but are mainly influenced on the quality of your accounts and availability of supporting documents for audit sampling. The complexity of the company structure and the company and any related party dealings are relevant as well. You should allow for four to six weeks for the auditor to review and prepare a draft.
5. How does the monthly bookkeeping outsourcing work?
You may simply provide us the copies of bank statements, invoices and expenses. We prepare the accounting records and the agreed management reports. You do not have to hire a separate accountant or frustrate yourself with a complicated accounting software.
6. What is a business transaction?
A business transaction or accounting transaction is a transaction that is required to be entered in the company’s accounting records. This includes transactions of sums of money received and expended and records of the company’s assets and liabilities.
7. What is financial year end date?
The financial year end date is the last day of the financial reporting period. Except for the first year, each financial reporting period is 12 consecutive months. The first financial reporting period begins on the date of incorporation and ends not later than 18 months thereafter. Thus, you can choose the preferred financial year end date yourself. Commonly used is the last day of the calendar year, or in line with the fiscal year which is from 1st April to 31st March.
8. What are the benefits of management accounts?
There are many benefits to having updated management accounts. Without specifying a priority, these include understanding the company’s performance and being able to steer the business effectively, making informed decisions, awareness of the company’s liabilities and obligations, good governance and compliance with statutory requirements.
9. What is the Annual Return, Profits Tax Return and Employer’s Tax Return and when are the filing deadlines?
The Annual Return is the reporting of the company particulars of the director and shareholder details and others to the Companies Registry. The Annual Return is due within 42 days after the anniversary date of the incorporation date. The Employer’s Tax Return is the reporting by the company of the number of employees and their salaries and earnings in the fiscal year. The Employer’s Tax Return is due within one month of the issue date of the return form which is normally sent out within the first week of April each year. The Profit Tax Return is the corporate earnings and tax reporting. The first Profits Tax Return form is issued after 18 months of the incorporation date of the company and due within 3 months after the issue date. The Profits Tax Return after the first return is issued in the first week of April each year and due to be filed within 1 month of the issue date. Companies can avail of a block extension of the filing due date if the appointed tax representative has applied for it with the IRD. In this case, the Profits Tax Return due date depends on the financial year end date. If your accounts are made up to 31st December, the filing deadline is 15th August and for accounts made up to 31st March, the filing due date is 15th November.
10. What happens if I miss a deadline?
If the filing deadline is missed, the company may receive a penalty notice from the IRD or a court summons for a hearing. The IRD may also issue estimated assessments which will become final if no objection is filed in time.