According to the Hong Kong Company Ordinance, all companies incorporated in Hong Kong are required to appoint an auditor for each financial year. Further, the audit report is one of the reporting documents the directors of a company must produce for the annual general meeting.
Generally, all companies have to submit the first profits tax return and audit report to IRD within three months after the issue date of the first profits tax return.
If companies set the year-end date as 31st Dec or 31st March, they can apply for a block extension from the second financial year. If companies set the year-end date as 31st Dec and apply for the block extension, they can submit the profits tax return and audit report on 15th Aug. If companies set the year-end date as 31st Mar and apply for the block extension, they can submit the profits tax return and audit report on 15th Nov.
New companies are free to set any date within 18 months after registration under the Hong Kong accounting standards and the Company Ordinance. If companies set the year-end date as 31st Dec or 31st March, they can apply for a block extension from the second financial year and can submit the profits tax return and audit report later.
Audit fees depend on the estimated time involved in completing the audit engagement. Also, the auditor will consider the professional risk and exposure they generate by issuing an opinion.
We normally take three or four months to accomplish the audit once we receive payment and the needed documents (due diligence documents and accounting documents).
According to Company Ordinance, a company is required to perform the audit and present the audit report to its AGM annually, regardless of their profit amounts or inactive status.
The Company Ordinance does NOT restrict a company's year-end date. In other words, the directors are free to determine the year-end date. Normally, most Hong Kong companies choose either 31 March or 31 December as their year-end date.
The three main types of taxes levied under the Inland Revenue Ordinance (IRO) are profits tax, salaries tax, and property tax.
Persons, including corporations, partnerships, trustees, and bodies of persons carrying on any trade, profession, or business in Hong Kong are subject to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from any trade, profession, or business. Therefore, no distinction is made between residents and non-residents. A resident may therefore derive profits from abroad without paying tax; conversely, a non-resident may be taxed on profits made in Hong Kong. Whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong is largely a matter of fact; however, some guidance on the principles applied can be found in cases that have been considered by the Hong Kong Courts and the Privy Council. No tax is levied on profits arising abroad, even if they are remitted to Hong Kong.
If a person sells his flat or any property as part of a profit-making scheme, it will be regarded as a business and he is required to pay tax on any profit he may make.
1) Simple tax system
2) Territorial source concept
3) No tax on dividends
4) No sales tax, consumption tax, or value-added tax
5) No withholding tax on dividends and interests
6) No capital gains tax
7) No estate duty
The statutory tax rate is 16.5% for corporations and 15% for unincorporated businesses. A two-tiered profits tax rates regime applies: 8.25% for corporations (7.5% for unincorporated businesses) on the first HKD 2 million of assessable profits, and 16.5% for corporations (15% for unincorporated businesses) on the remainder of assessable profits.
To avoid abuse of the two-tiered tax regime, each group of connected entities can nominate only one entity to apply the two-tiered tax rates.
In consideration of whether a company is carrying on a business in Hong Kong, the IRD applies "Six Badges of Trade" as follows:
1) Profit-seeking motive at the time of acquisition
2) Subject matter of the commodity disposed
3) Length of ownership
4) Frequency of similar transaction
5) Supplementary work done on the property
6) Circumstances leading to the disposal
Generally, the profits tax return and any required supplementary forms should be filed within one month from the date of issue. The compliance date of submission is specified on page one of the profits tax return. In the case of a newly-incorporated company, the IRD usually allows the taxpayer to spend more time preparing the profits tax return and any required supplementary forms, which should be filed within three months from the date of issue. A block extension scheme may be applied to certain companies when their conditions fit the IRD-stated requirement. For details, please consult our relationship manager.
A Hong Kong company is liable for profits tax if certain conditions are fulfilled, as stated in Inland Revenue Ordinance (Chapter 112).