What are the requirements for audit and tax submission?

A complete checklist for your next tax submission

In this article, we will talk about the audit requirements and tax filing in Hong Kong. As we mentioned in our previous article which introduce the Hong Kong Profits Tax, in order to complete the profit tax return, it is required to submit your Tax Return along with an audit report to the IRD.

1. Filing Profits Tax Return to IRD

You have received the Profit Tax Return issued by IRD, what now? According to Hong Kong company law, every company formed in Hong Kong is required to submit the Profits Tax Return.

1.1. What is required to file the Profits Tax Return?

• Balance Sheet
• Profit & Loss Account
• A tax computation with supporting schedules
• An auditor’s report run by a CPA
• 
  

1.2. Dates to remember

Financial year: April 1st to March 31st of the following year.

Date of issue for Profit Tax Return: First working day of April every year*

Deadline for submission: 1 month from the day of issue*

*For newly incorporated businesses, the first Profit Tax Return will be issued about 18 months after the incorporation of your business. You are required to complete the tax return within a 3-month period from date of issue in the first submission.

2. Audit requirements in Hong Kong

All Hong Kong incorporated companies are statutorily required by the Companies Ordinance to audit their financial statements on a yearly basis.

Financial statements are essentially accounting documents prepared by a Certified Public Accountant (CPA) on behalf of a business, with the aim to provide financial accountability to the company’s stakeholders. For private companies, financial statements are not required to file on public record.

For corporate entities, financial statements are required to comply with the disclosure requirements set out in the ‘Company Ordinance’, ‘The Hong Kong Financial Reporting Standards’, and ‘The Rules of The Stock Exchange of Hong Kong Limited’ for listed companies.

To comply with the Hong Kong Companies Ordinance, all companies should have accounting records for:

• All sums of money received or expended by the company and the matters in respect of which the receipt and expenditure takes place;
• All sales/service income and direct operating costs of the company;
• The assets and liabilities of the company.

Accounting records must be kept for seven years from the end of the financial year in which the last entry was made, or to which the last recorded matter relates.

Please note that, for businesses that operate offshore, the relevant supporting invoices and receipts, along with other relevant records, are still required to be kept.

In Hong Kong, only a Certified Public Accountant (CPA) can perform the audit. In order for the CPA to perform a proper audit, correct management accounts are needed. In order to prepare for your audit, it is best practice to have a list of required documents prepared.

• Audited financial statements of subsidiary companies
• Copy of original Profit Tax Return from the IRD
• All financial statements
• All sales/service agreements, employment contract, tenancy agreement
• All purchase invoice
• Receipt for all expenses
• Bank statements (The auditor might ask you to sign a confirmation form which will be sent to the bank to obtain the bank balance)
• All sales invoices with the corresponding receipt
• Copy of any special license like SFC License and Property Agent License (if any)
• Copy of company registration documents:
• Updated business registration certificate
• Incorporation certificate
• Articles of association
• Annual Return

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3. Accounting

While an audit must be done by a CPA, accounting is something that can be performed by an in-house employee or external accounting firm who has the relevant accounting knowledge and qualifications. The qualifications and knowledge needed are dependent on the complexity of the business nature and operations.

Management accounts include a Profit and Loss Account, Balance Sheet, Trial Balance and General Ledger. It is advisable to maintain the habit of managing your accounts on a monthly basis, especially for those who have a lot of entries and a pile of supporting documents.

It is essential to submit well-organised accounts to your CPA.  If your management accounts are disorganised and unclear, you may face a delay in getting your audit done (which also means additional charges from your CPA).

While accounting seems to be a tedious job, using cloud-based accounting systems like Xero can help you prepare the financial statements and manage your accounts with ease. Designed for SMEs, you can run a series of crucial accounting jobs online using Xero, such as running a payroll, managing expenses and generating financial reports.

In addition to audit service and being Xero’s official partner in Hong Kong, FastLane also provides professional services in performing the tax computation and filing with IRD. Talk to us today to learn how we can help you!

4. Conclusion

Now we learned about the Profits Tax Return and the Audit Requirements of Hong Kong, our next article would dive deeper to tax exemptions of offshore companies in Hong Kong.

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