Are you considering setting up a company in Hong Kong? Perhaps you have a Hong Kong Company but find it confusing to keep up with the compliance. Has your accountant suddenly reached out to you with a new charge that you are not familiar with? This article is to clarify the basic responsibilities that your Hong Kong Limited Company shall take up every year.
Annual compliance in Hong Kong
Annual compliance refers to a set of responsibilities a company should assume once it has been established. You must observe these compliance requirements according to your company’s fiscal year-end and the anniversary date. Every local private company must comply with the obligations administered by these two government entities:
- Companies Registry
- Inland Revenue Department (IRD)
Compliance with the Hong Kong Companies Registry
The Companies Registry is the department in charge of registering local and non-local companies in Hong Kong. It maintains records of active and dissolved companies.
Annual Return
The Companies Ordinance prescribes that every company must deliver an Annual Return, which contains its particulars, such as the registered office, shareholders, directors, company secretary. The return date is within 42 days of the anniversary date of the company’s incorporation. If the company does not file the Annual Return after 42 days of the deadline, the company will have to pay penalties. Please see the NAR1 Annual Return Form “NAR1(Private)_Specimen-e” for your reference.
Business Registration
Business Registration must be renewed upon its expiry date. Normally, if you have applied for a one-year Business Registration, we recommend preparing the renewal of the Business Registration before the anniversary of the company. Please see Business registration specimen for your reference. For a one-year certificate, the annual registration fee is HKD 2,150; for a three-year certificate, the registration fee is HKD 5,650.
Significant Controller Register (SCR)
To enhance the transparency of corporate beneficial ownership, a company incorporated in Hong Kong must obtain and maintain up-to-date beneficial ownership information by keeping a Significant Controllers Register. The SCR register must be kept at its registered office address or a place in Hong Kong. In the latter case, the company must file a Form NR2 to the Companies Registry reporting the location of SCR. The Register should be open for inspection by law enforcement officers upon demand. Failing to do so will render the company and the responsible person of the company liable to fines.
Compliance with the Inland Revenue Department
Financial Statements Audit
Every Hong Kong company, except those in dormant status, must undergo an annual financial audit under the Companies Ordinance (CO). This applies even to companies eligible for simplified reporting, ensuring adherence to strict disclosure standards.
Compliance with the Inland Revenue Ordinance (IRO) further mandates that all operating corporations submit audited financial reports and an auditor’s report with their Profits Tax Return (PTR). From April 1, 2023, even small companies with gross income below HK$2 million (approximately US$250,000) must fulfill this requirement.
Profits tax return (“PTR”)
A limited liability company in Hong Kong is subject to the obligation of filing Profits Tax Return – Corporations (BIR51).This form is specifically for corporations for the purpose of reporting profits tax.
Supplementary Forms to Profits Tax Returns (BIRS1 to BIRS18) and Other Forms (IR1478 & IR1479):
- Supplementary forms (BIRS1 to BIRS18) are introduced to report information related to preferential regimes and tax incentives as of April 1, 2019.
- Other forms (IR1478 and IR1479) are introduced to report information concerning specified foreign-sourced income and family-owned investment holding vehicles. These forms must be downloaded and filled out electronically.
Electronic Submission Requirement:
Starting from April 1, 2023, all required supplementary forms and other forms must be submitted electronically. In case you opt for paper submission of your tax return and supporting documents, you must print and sign the Control List for the supplementary form and other forms uploaded. This Control List should be submitted alongside the Profits Tax return and must bear the signature of the same person who signs the tax return. For electronic or semi-electronic filing, you can utilize the Completion Service and Submission Service, which will link the uploaded data files with the corresponding Profits Tax return, using the same Profits Tax File Number and RIN (Reference Identification Number).
Who Should File PTR:
- Newly Registered Business: A newly registered business typically receives its first Profits Tax return approximately 18 months after commencing business operations or incorporating.
- Continuing Business – Annual Bulk Issue of Returns: The issuance of Profits Tax returns in bulk occurs annually on the first working day of April.
- Business Not Required to Submit Return Annually: In cases where a trade, profession, or business does not generate assessable profits or has not commenced or has ceased without recommencement, the IRD does not mandate annual submission of Profits Tax returns. However, if you receive a Profits Tax return as part of a review, you must still comply with the requirement to lodge the return form.
When to File:
- Normal Filing Time: Generally, Profits Tax return, any required supplementary forms, and other forms (IR1478 & IR1479) should be filed within one month from the date of issue. The submission deadline is specified on page 1 of the Profits Tax return.
- Further Extension for using Electronic Filing: To encourage the adoption of electronic filing, the IRD offers an additional one-month extension beyond the standard due date upon request. This extension is contingent upon the condition that Corporations and Partnership Businesses submit their Profits Tax returns via the Internet.
- Block Extension Scheme: Your Tax representatives may use the “Block Extension Scheme” which allows tax representatives to apply for a single extension of time to file PTR for multiple clients. This eliminates the needs to apply for extensions for each client individually. At the start of each year, the IRD will issue a Circular Letter to Tax Representatives outlining the current year’s arrangements for the Block Extension Scheme, providing the extended due dates of filing the PTRs for their clients.
Employer’s return
Every year, you are required to file an Employer’s Return with the Inland Revenue Department (“IRD”). The form contains important information, such as employee remuneration, additional benefits, and other allowances or deductions. The Employer’s Return enables the IRD to accurately determine your employees’ salary tax liabilities. Since non-compliance can lead to penalties and fines, it is vital to file your Employer’s Return correctly and promptly.
Check out our article Employer’s Return in Hong Kong: What You Need to Know for further details.
Our suggestions:
Understanding Hong Kong’s Accounting and Taxation Practices: It’s essential for businesses operating in Hong Kong to have a solid understanding of the local accounting and taxation system. This includes comprehending the relevant laws, regulations, and tax structures specific to the region. This foundational knowledge will help you navigate financial matters effectively and remain compliant with legal requirements.
Thoroughly Assessing Service Proposals: When considering external accounting and secretarial service providers, it’s crucial to conduct a thorough evaluation. This involves not only examining the cost but also scrutinizing the scope of services offered, the reputation and track record of the provider, and their ability to meet your specific business needs. Careful consideration at this stage can lead to a productive and mutually beneficial partnership.
Cultivating Meticulous Record-Keeping Habits: From the very beginning of your business venture, establish a practice of meticulous record-keeping. This means maintaining organized and comprehensive business records, including financial transactions, invoices, receipts, and any other relevant documents. This discipline will streamline your financial management processes and prove invaluable during audits or assessments.
Timely Declarations and Reporting: Delays in submitting declarations and financial reports can have significant consequences. It’s not only about adhering to regulatory deadlines but also ensuring that crucial financial information is readily available. Failure to do so may result in the loss of essential data, internal records, and the imposition of penalties by regulatory authorities. Timely reporting also fosters transparency with stakeholders, such as banks.
Frequent Financial Reporting for High-Transaction Companies: For businesses with a high volume of financial transactions, it’s prudent to consider more frequent financial reporting intervals. This could involve monthly or quarterly reports rather than just annual ones. This approach provides a real-time view of your company’s financial health, enabling quicker decision-making and early detection of potential issues.
Careful Review of Financial Reports: Upon receiving financial reports from your accountants, it’s essential to conduct a thorough review. Take the time to go through the information presented and raise questions or seek clarifications if any doubts or uncertainties arise. A responsible service provider will promptly address your inquiries, ensuring that you have a clear understanding of your financial standing.
Maintaining Up-to-Date Statutory and Business Records: Keep all statutory and business records current and accurate. This includes corporate documents, contracts, licenses, and any other legal records. Maintaining an up-to-date record-keeping system ensures compliance with regulatory requirements and facilitates smooth business operations.
Regular Bank Account Updates: Maintain regular communication with your bank, providing them with updated information about your company’s status. Ensure that your bank account maintains sufficient funds to cover any bank charges or deductions. This practice helps avoid unnecessary financial disruptions and ensures a positive relationship with your banking institution.
Consulting Corporate Secretarial Experts: Given the phased implementation of the Companies Registry’s New Inspection Regime starting in 2021, it’s advisable to consult with corporate secretarial specialists. These experts can provide guidance on compliance with evolving regulations and assist in navigating any changes in corporate governance requirements. Staying informed and seeking expert advice will help your business remain compliant and avoid potential issues.
What CW can do for you
We can help you realise your ambitions of international expansion by taking care of all aspects of your business, from entry into Hong Kong and beyond, HK company set up, HK incorporation, company registration, business account opening – as well as ensuring ongoing compliance with tax, accounting, auditing and other regulatory requirements, identifying restructuring opportunities, managing your payroll to hiring and upskilling of staff.
