General questions related to tax reporting and auditing:

Question: Why is auditing necessary?

Answer: According to the Hong Kong Companies Ordinance and the Inland Revenue Ordinance, companies established in Hong Kong are required to undergo compliance audits of their financial reports for each fiscal year in order to fulfill their tax reporting obligations.

After receiving the profits tax return, the company must submit the audit report verified by a registered practicing accountant to the Inland Revenue Department for assessment. This ensures the fairness and accuracy of the company’s finances and determines the total amount of tax payable for that fiscal year.

If a company ignores auditing for a long time, the legality of its finances may be questioned by the tax authority or banks, and the company’s accounts may be subject to inspection. In serious cases, the company and its directors may be charged with criminal offenses such as money laundering, which could have serious consequences.

Question: What is the main purpose of a general audit report?

Answer: It is mainly used for tax reporting, stock transfers, and presentation at annual general meetings.

• Tax reporting: A Hong Kong limited company must submit audited financial reports to the tax authority for tax reporting purposes.
• Stock transfer: When processing the transfer of company shares, audited accounts must be submitted for stamp duty.
• Presentation at annual general meetings: Under the Companies Ordinance, a Hong Kong limited company must prepare audited annual financial reports each year and present them at the annual general meeting of shareholders.

Question: What are the auditing requirements in Hong Kong?

Answer: According to regulations, companies established in Hong Kong must have their financial statements audited by a registered practicing accountant (CPA) in Hong Kong every year. The auditing requirements for all companies or entities’ financial statements must comply with the Companies Ordinance and the Hong Kong Financial Reporting Standards. If a company is listed in Hong Kong, it must also comply with the relevant auditing requirements of the Hong Kong Stock Exchange.

All Hong Kong limited companies are required to undergo statutory audits in Hong Kong (based on Hong Kong Financial Reporting Standards (HKFRS) or SME-FRE), and generally, small and medium-sized enterprises will undergo auditing based on the SME-FRE.

 

Question: What documents are needed for an audit?

Answer: Prior to an audit, the company has the responsibility to prepare relevant documents, such as providing the business revenue and expenditure records for the previous fiscal year, including receipts and financial records in physical or electronic form. This includes all financial statements, bank statements, sales/service/lease agreements or contracts, quotations, purchase invoices, order receipts, and copies of income tax returns.

In addition to financial information, the audit process may require the company to provide copies of registration documents, including business registration certificates, articles of association, and copies of special licenses. In general, businesses need to keep accounting records for up to 7 years.

Question: When is the first audit report due for a company’s first tax filing?

Answer: For an unaudited company, as long as it is established in Hong Kong, the Inland Revenue Department will issue the first profits tax return 18 months after the company is established. The deadline for the first tax return of a new company is within 3 months.

At that time, the company owner has an obligation to submit the first audit report to the Inland Revenue Department for review along with the completed tax return within 3 months of the issuance of the tax return.

Thereafter, every fiscal year, the company should receive a profits tax return, which means the company needs to prepare the audit report properly every year.

Question: Is an audit required for a company that has not started operating or generated any income?

Answer: In some cases, companies may not be required to submit an audit report, such as when the company is in a “not yet operational” state. Once the company is not yet operational, it can declare the “not yet operational” status to the Inland Revenue Department, which may exempt it from conducting an audit after considering the circumstances.

In addition, if a company unfortunately does not generate any income during the fiscal year, it still needs to fill out the tax return truthfully and attach the relevant audit report.

Question: Does an offshore company need an audit?

Answer: Whether an offshore company requires an audit depends on the jurisdiction in which the company is registered and the nature of its business activities in Hong Kong.

If the company is registered in the British Virgin Islands, Seychelles, etc., and does not participate in any business activities from Hong Kong, it will not receive a profits tax return from the Inland Revenue Department and therefore does not need to submit an audit report.

General tax-related questions:

Question: What taxes does a Hong Kong company need to pay annually?

Answer: Hong Kong companies only need to pay profits tax annually, which is calculated based on 16.5% of their profits. Companies with profits less than HK$2,000,000 can apply for a half-tax exemption, which is 8.25%. If the company does not make any profits, it does not need to pay profits tax.

Question: When is the annual reporting period for a Hong Kong company?

Answer: The usual practice is to use March 31st or December 31st as the tax base period for each year. The first tax base period for a Hong Kong company can be up to 18 months.

Question: How is the accounting year (tax base period) for Hong Kong determined?

Answer: The tax base period can be one of the following periods:

Most commonly, March 31st or December 31st is used as the year-end.
Other months can also be chosen as the year-end.

Question: What is the deadline for submitting a profits tax return?

Answer: The Inland Revenue Department usually issues profits tax returns to all companies in Hong Kong on the first working day of April each year. After receiving the tax return from the Inland Revenue Department, the profits tax return should be submitted within 1 month. The submission deadline is indicated on the first page of the profits tax return.

If you have a tax representative who has applied for an extension to submit your profits tax return, the submission deadline can be extended to the following date.

Year-End Date	issued by IRD Time for tax returns	submit audit report and tax return to IRD Deadline	IRD is called this batch code
January 1— March 31	April 2 of the same year	November 15 of the same year	M code
April 1— November 30	April 2 of the following year	April 30 of the following year	N code
December	April 2 of the following year	August 15 of the following year

Question: What are the limitations on tax deductions for donations under Hong Kong tax laws?

Answer: Donations to approved charitable organizations are eligible for deduction, subject to a minimum total amount of $100 and a maximum of 35% of assessable profits for the year (25% for the 2007/08 fiscal year).

Question: Can Hong Kong companies offset profits with losses from previous years?

Answer: Losses incurred in a given tax year can be carried forward and used to offset profits in subsequent years.

Question: What is provisional profits tax?

Answer: Profits tax is levied based on actual profits earned during the tax year. As profits for a given year can only be determined after the end of that year, the Inland Revenue Department (IRD) collects provisional tax before the end of the year. Once the profits for the year are assessed in the following year, the provisional tax paid can be applied towards the final profits tax liability.

Question: Under what circumstances can Hong Kong companies be exempted from paying profits tax?

Answer: If a company’s income is not sourced from Hong Kong and the company does not have an office or employees in Hong Kong, the profits earned may be exempt from profits tax. However, an application for offshore income tax exemption must be made to the IRD.

Question: My Hong Kong company only has a bank account for receiving and paying Chinese company payments. Does it need to do bookkeeping, auditing, and tax reporting in Hong Kong?

Answer: Yes, it does. As the company was established for profit-making purposes, even if it only acts as an intermediary for receiving and paying payments, it still needs to do bookkeeping and auditing. By keeping records of the entire process of receiving and paying payments, the actual income of the Hong Kong company can be determined as required.

Question: Our company only has bank accounts with foreign banks in China and does not have an account in Hong Kong. Does our company not need to report taxes in Hong Kong?

Answer: No, it does not. Under Hong Kong laws, all Hong Kong companies must report their financial status to the IRD, regardless of whether their business is conducted in Hong Kong. If a company’s income is not sourced from Hong Kong, it can apply to the IRD for exemption from tax.

Why choose us for audit services?

Under Hong Kong laws, all limited companies established in Hong Kong must have their financial reports audited annually. The financial reports must include a balance sheet, income statement, and statement of changes in equity. The purpose of the audit, conducted by a third-party auditor like WSquare CPA, is to comply with the requirements of the Hong Kong Companies Ordinance and Taxation Ordinance.

Our auditors will review the company’s financial reports to determine if the information provided accurately reflects the company’s financial situation. Once the audit is complete, we will prepare an audited financial report and profits tax computation, which will be submitted to the IRD for assessment. The IRD will use these documents to determine the company’s tax liability for the fiscal year. Thus, an accurate audit will help ensure compliance and enable the company to fulfill its tax obligations without error.

We have an experienced team and take data security seriously, using system encryption to ensure reliability and security.

Comparison of Audit Services

	WSquare CPA Ltd	Personal Accountant	Affordable Accounting
Service Charges	High transparency of fees, no additional fees	Charge Personalization	Low rates, additional fees apply
Quality of Service	Services include reviewing tax returns, one-stop service, providing tax bureau stamp certificates after tax returns, and entrusting with peace of mind.	Review data, personalize declaration, no tax declaration record.	Review data, tax declaration, no tax declaration records.
Security	Certified accountants and the team directly handle, punctual tax returns and detailed tax expenses.	A personal accountant handles it. If the accountant has something to do, it will affect your tax return time.	Taking a large number of matters, not timely tax returns and detailed instructions.
Follow-up service	Continue to follow up after tax declaration, you can directly contact the responsible colleagues to understand and reply immediately.	Responsibility for completing tax declaration, no professional tax colleagues to follow up	Price issue, will not continue to follow up after the tax declaration is completed

The above information is for reference only