No matter what stage your business is currently at, accounting is one major aspect that you can’t neglect. Some people might underestimate its significance but, in fact, it is easy for you to miss out some details. Fion Sen, co-founder and managing director of Bridges Executive Centre, contacted Localiiz to answer five frequently asked accounting questions for our city's business owners.
1. When Do I Need to Submit My First Audit Report to the IRD?
If you have formed a Hong Kong company, you will receive your first Profits Tax Return in around 18 months after the date of incorporation
. You will need to prepare your accounting records and submit your first audit report together with the completed tax return to the IRD within a three 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.
2. How Do I Decide My Financial Cut-off Date?
Most Hong Kong companies will set their financial cut-off date as December 31 or March 31
. 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 Hong Kong Government’s fiscal cut-off date. Of course, you could definitely choose another month as per your preference.
3. Can I Handle the Accounting and Audit Arrangement Work Myself?
Certainly you can handle the accounting work by yourself, whilst your audit work needs to be managed by a Hong Kong 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 not feasible as those bookkeeping records are insufficient to process with an audit for your company; you must complete a full set of accounts including Profit and 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.
4. Do I Need to Prepare an Audit Report If My Business Has Not Yet Commenced or Does Not Generate Income?
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.
5. Can an Audit Report Be Skipped If I Set Up an Offshore Company?
It depends on which jurisdiction you have picked and whether your company involves business operations in Hong Kong 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 Hong Kong that has profits arising in or derived from Hong Kong, your audit report can be skipped
(you won’t even receive the Profits Tax Return from the IRD since Hong Kong is not your picked jurisdiction).
However, if your offshore company involves business in Hong Kong that has profits derived from Hong Kong, you should report this to the IRD and your company will be liable to Hong Kong profits tax, which means you will need to prepare an audit report. As a smart move, no matter yours is a Hong Kong 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.
More questions? Please contact us here.
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