Our company provides accounting services for Hong Kong companies, especially for those leading offshore business (outside Hong Kong). Such companies have benefit of not paying any tax if their business is conducted not in Hong Kong, and our company helps to make their accounts, file tax reports and get the tax exemption. Hong Kong companies in accordance with the law (Companies Ordinance) and requirements of Hong Kong tax authorities must keep accounting records properly, regardless of whether their business is conducted in Hong Kong or outside it, and make an annual audit.
If your Hong Kong company does not make business in Hong Kong the company pay no tax.
You only need to provide scan copies of invoices and bank statements once a year for accounting and audit.
Our prices for accounting and audit of Hong Kong companies are among the lowest in this field.
Corporate tax system in Hong Kong
Hong Kong tax system for business is very simple: there is only one tax "Profits Tax" levied on the business activities of Hong Kong companies. The tax rate is 16,5% for now. And, if the source of income is outside the territory of Hong Kong, companies are exempt from it at all.
"Dormant" companies tax filing in Hong Kong
In the period of absence of commercial activity Hong Kong companies should file "NIL" Profits tax return to tax authorities, but not every year, just once in 3-4 years under request of tax authorities. Cost of our services: USD150.00). Audit in this case is not carried out. In addition to filing Profits Tax Return, Hong Kong companies are also required to file a Employer's Return. The cost of filing the declaration - USD90.00 (once in 2-3 years).
Financial year end in Hong Kong
First financial year of Hong Kong company can be 12 to 18 months. The financial year end date can be any day of the year (not only December 31st like in many other countries). It is a common practice for companies (especially state institutions) resided in Hong Kong to use March 31st as a financial year end day. But companies conducting offshore business can use any date (usually it is a last day of any month), furthermore this is necessary for our accounting work to distribute all customer companies for different tax periods for better efficiency. The date of financial year end
Periods of tax filing in Hong Kong
First time tax declaration (a Profits Tax return) will be issued by Hong Kong tax authorities (Inner Revenue Department (IRD)) in about one year and a half after company incorporation date. After issuing this return a period of three months is granted for filling and filing it to IRD. In this first tax return a company will state which date it choose for financial year end. Beginning from next year a company will file Profits Tax return in the tax period according to chosen date.
There are three tax periods with different deadline for filing tax returns (Profits Tax Return) accompanied with financial statements of company in Hong Kong:
- The one with code "D" (first letter in the name of month December) is for those Hong Kong companies which financial year end date falls in the period from December 1st to December 31st. Such companies should file Profits Tax Return before 15th of August of next calendar year.
- The one with code "M" (first letter in the name of month March) is for those Hong Kong companies which financial year end date falls in the period from January 1st to March 31st. Such companies should file Profits Tax Return before 15th of November of current calendar year.
- The one with code "N" (first letter in the name of month November) is for those Hong Kong companies which financial year end date falls in the period from April 1st to November 30. Such companies should file Profits Tax Return before 2nd of May of next calendar year.
Supporting documents for accounting
For the purpose of accounting and preparing financial statements of Hong Kong company a customer should provide at least all inward and outward invoices and bank statements. It is enough to provide scan copies of those documents to us. All documentation should be in English (or Chinese) language. If the document is in another language a translation into English should be provided.
Invoices of Hong Kong company:
Invoices issued or received by Hong Kong company in the reporting financial period can be drawn in a free form, but should consist at least basic information about transaction: buyer's name, seller's name, buyer's address, seller's address, name of product or service, price per unit and total amount of the invoice, payment terms. And if it is possible, for accounting purpose, please indicate date and amount of payments under specific invoices (this information regarding which payments correlate to which invoices can be provided in any convenient to customer way). For the purposes of audit a customer also needs to provide inward and outward invoices for the 3 months subsequent to the end date of the reporting period.
Bank statements and advices of Hong Kong company:
For accounting purpose bank statements for reporting period are also should be provided by customer. Like invoices they also can be provided in scan copies. If information in those bank statements is insufficient (for example - only date and amount of transaction are reflected), in this case bank advices both inward and outward on each operation within reporting period are needed. So it is strongly recommended to save bank advice after each bank transaction. For the purpose of audit is also necessary to provide bank statements for the period 3 months subsequent to the end of the reporting period.
Other supporting documents:
There are maybe other supporting documents you can provide confirming the company's costs and income (if any), such as transportation bills, cargo insurance polices, travel costs, rental of movable / immovable property, the cost of maintaining representative office and others.
Terms and stages of accounting / audit / tax work of Hong Kong company
1st stage: A customer provides primary supporting documents to our company for accounting at least once a year after the end of the reporting period. However, we recommend you to transmit documents to us in advance during the reporting period on a quarterly basis. Term: during about one-two months after reporting period end date.
2nd stage: At the same time as the 1st stage our company arranges in advance preparation of bank confirmation form by auditor, and then sends it to the customer for signature by the company bank account authorized signatory. After this the customer should send it to the bank (bank confirmation letter consists his instruction to the bank to provide necessary information for audit). The bank after issuing bank confirmation (filling necessary blanks with the data of account balance figures at the financial year end date) sends it directly to the auditor. Term: depending on place of customer and bank varies from 1 week to 1 month and more.
3rd stage: Accounting. Processing of supporting documentation, request of documentation missed (if any), making company accounts, preparation of financial statements. Term: about one month (depending on availability of all supporting documentation).
4th stage: Confirmation of results of financial statements with a customer and payment of accounting and audit services by customer to our company. Amount of accounting fee depends on quantity of accounting transactions (roughly speaking, one invoice is one transaction, one payment is another transaction). Amount of audit fee depends on turnover - turnover figures (for example, total amount of sales for trading companies) could be seen in Income statement of financial statements. Price for accounting and audit services please see here. Term: about one week.
5th stage: Audit of financial statements. For audit, besides financial statements prepared by our company and supporting documents for reporting period, inward and outward invoices and bank statements for period of three months subsequent to financial year end should be provided by customer. Also bank confirmation letter mentioned in Stage 1 should be received to this moment by auditor from bank. Audit is carried out once a year after the preparation of the financial statements. Term: about 1 month.
6th stage: Confirmation of audit report sent by e-mail by customer. Printing, signing of audited financial statements by customer, sending these signed documents in paper by courier to our company. Term: about one week.
7th stage: Filing Profits Tax return to tax authorities of Hong Kong (IRD) with audited financial statements attached. Term: about 2 days after documents received.
Questionnaire on offshore profits from Hong Kong IRD
Sometimes after filing offshore profits tax return in about 20% of offshore cases after 2 or 3 months Hong Kong IRD may send request for information (questionnaire) regarding details of company’s offshore business (usually 20 to 30 questions). The goal of this questionnaire is to confirm that the business income source is not in Hong Kong. After 3-6 months after an answer from company received Hong Kong tax authorities issue a written notification about accepting it. In our practice, if a business really has offshore nature (see below) tax exemption success rate is 100%. Term: after the questionnaire is issued by IRD a company has 1 month for answer (the answer can be sent by e-mail).
A customer can answer to IRD directly by himself, because all questions are related to his own business. Or pass this job to our company for additional commission USD550.00 (still supporting documents and information should be provided by customer).
What does it mean “offshore source of income”?
That means profits are made not in Hong Kong, the activity was carried out of Hong Kong, the transportation of the goods is not carried through Hong Kong, contracts were signed not in Hong Kong, invoices are issued not in Hong Kong, there is no real existing office and employees in Hong Kong, etc. Also we recommend to avoid commercial transactions with other Hong Kong companies.
In order to prepare a proper response to a questionnaire we recommend to keep the following documents (in addition to invoices and bank documents):
- correspondence (email, fax, etc.) with suppliers / customers
- contracts with suppliers / buyers / agents
- transportation documents (regarding sold/purchased goods)
- price lists to sold/purchased products/services, catalogs, orders for goods / services, etc.
After Hong Kong company receive official written letter about acceptance of fact that there is no taxable profits, it also notifies that IRD will not issue tax return several years, so there is no need to file it. But in case if a company will get taxable income it should request for issue of tax return.
The fact that company can not to file tax return several years (before IRD issue next tax return blanc) doesn't mean that the company can do nothing. A company still should do accounting and pass through audit every year.
Company documentation under requirements of Hong Kong legislation should be kept at least seven years.