Accounting & Auditing in Hong Kong

There are mainly 3 types af tax returns, you need to file to the IRD: Employer’s Return, Profit Tax Return and Individual Tax return. 

Each entrepreneur is obligated to file these 3 tax returns each year since the first return is received.

Business rates are a tax charged in the UK on non-domestic properties, such as offices, shops, factories, and warehouses. They turn out to be a crucial source of revenue for councils, which helps finance local services such as education, waste collection, and infrastructure maintenance. Essentially, business rates are the commercial cousin of council tax on residential properties.

The amount payable by an organization is based upon the rateable value, assessed by the Valuation Office Agency (VOA). The rateable value includes an estimate of the yearly rent that may be realized on the open market for a property. Once the rateable value is established, it is multiplied by a multiplier, set annually by the government to take into consideration inflation and other economic factors. There are two multipliers: the standard multiplier and the small business multiplier; the latter has a lower rate for eligible businesses.

Businesses can be entitled to reliefs, which come off the amount of rates payable. The most usual reliefs are:

• Small Business Rate Relief (SBRR) on properties with a low rateable value.
• Charitable Rate Relief for charities.
• Rural Rate Relief for premises in sparsely populated areas.
• Empty Property Relief for unoccupied premises under certain conditions.

The government engages in periodic revaluation of properties to ensure that the system reflects the current market. The most recent revaluation came into effect in 2023.

Business rates are a considerable cost of operation for many companies. Businesses are encouraged to explore potential reliefs and exemptions to manage their financial obligations effectively. Consulting with a professional or using government tools to check eligibility for reliefs can provide savings and ensure compliance.

If you have formed a HK company, you’ll receive your first Profit Tax Return (PTR) in 18 months after the date of incorporation. Thus you’ll need to well prepare your accounting records and submit your first audit report together with the completed tax return to the IRD.

Generally, all outgoings and expenses, to the extent to which they have been incurred by the taxpayer in the production of chargeable profits, are allowed as deductions.

For those companies registered in offshore jurisdictions but having profit derived from HK, they are still liable to HK Profit Tax. It means these businesses need to file the Profit Tax Return to the IRD

Read more: Hong Kong offshore tax exemption

The requirement to audit the accounts of the company is set down by the Companies Ordinance. The Ordinance does not provide any conditions under which no audit is required.

The IRD will issue Employer’s Return and Profits Tax Return on the first working day of April every year, and issue Individual Tax Return on the first working day of May every year. It is required for you to complete your tax filing within 1 month from the date of issue; otherwise, you may face penalties or even prosecution. 

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• Accounting and Auditing services
• Auditing service Hong Kong

8.25% on assessable profits up to $2,000,000; and 16.5% on any part of assessable profits over $2,000,000 from 2018/19 onward.

The Profit Tax Return shall also be submitted to the IRD even if the limited company has not commenced its business.

The Government of Hong Kong requires all companies incorporated in Hong Kong must keep financial records of all transactions including profits, revenues, expenses should be documented.

18 months from the date of incorporation, all companies in Hong Kong are required to file their first tax report which consists of accounting and auditing reports. Furthermore, all Hong Kong companies, including Limited Liability, the annual financial statements must be audited by external independent auditors who hold the Certified Public Accountants (CPA) license.

One IBC offers our Accounting & Auditing services to all of our clients who are operating their companies in Hong Kong. Our offered services include:

1. Coordination and advice for setting up bespoke accounting systems.
2. Bookkeeping and annual accounts preparation.
3. Periodic management accounts and reports.
4. Budget and cash flow preparation and forecasts.
5. Compliance with Hong Kong Inland Revenue Department (IRD), Securities and Futures Commission (SFC) reporting requirements if any.

For more information, please send us an inquiry via email: [email protected]

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• HK profit tax rate

The reason is that if your business has profits derived from HK, even if your company is registered in offshore jurisdictions, your profits are still liable to HK Profits Tax and you need to file the Profits Tax Return compulsorily.

However, if your company (whether it is registered in HK or offshore jurisdictions) does not involve a trade, profession or business in HK that has profits arising in or derived from HK, i.e. your company is operating and generating all profits wholly outside HK, it is possible that your company can be claimed as an ‘offshore business’ for tax exemption. To prove your profits are not liable to HK Profits Tax, it is suggested to select righ experienced agent at the initial stage

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The accounts of a limited company shall be audited by a Certified Public Accountant before submitting to the Inland Revenue Department (IRD) together with an auditor's report and Profit Tax Return.

Generally, offshore companies are free from tax liabilities, all foreign-sourced incomes are tax exempted for companies incorporated in Hong Kong. To be qualified for Hong Kong offshore tax exemption, companies need to be assessed by the Inland Revenue Department (IRD) of Hong Kong.

According to IRD, the following are excluded from the assessable profits:

• dividends received from a corporation which is subject to Hong Kong Profits Tax;
• amounts already included in the assessable profits of other persons chargeable to Profits Tax;
• interest on Tax Reserve Certificates;
• interest on, and any profit made in respect of a bond issued under the Loans Ordinance or the Government Bonds, or an Exchange Fund debt instrument or a Hong Kong dollar-denominated multilateral agency debt instrument;
• interest income and trading profits derived from long term debt instruments;
• interest, profits or gains from qualifying debt instruments (issued on or after 1 April 2018) exempted from payment of Profits Tax; and
• amounts received or accrued of a specified investment scheme by or to one person

If you still want to know more information about tax exemptions for Hong Kong offshore companies, you can contact our consulting team via email: [email protected]

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• Profit accounting Hong Kong
• Auditing service Hong Kong

Any person who fails to file tax returns for Profits Tax or provide false information to the Inland Revenue Department is guilty of an offence and liable to prosecution result in penalties or even imprisonment. In addition, section 61 of the Inland Revenue Ordinance addresses any transaction which reduces or would reduce the amount of tax payable by any person where the Assessor is of the opinion that the transaction is artificial or fictitious or that any disposition is not actually in effect. When it applies the Assessor may disregard any such transaction or disposition and the person concerned shall be assessed accordingly.

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If the corporate profits do not derived from Hong Kong, and the company has not set up an office in Hong Kong nor hired any Hong Kong employees, its earned profits will be exempt from Profits Tax. But the Company should apply for the offshore claim exemption position from IRD.

A beginning penalty of few thousand dollars or above may be applied if a Profit Tax Return hong Kong is not submitted before the due date.

A further fine may also be applied by a district court from the Inland Revenue Department.