Hong Kong Fact-File Part 1:
Business Formation for Individuals

1.7 Hong Kong Business Accounting

Accounting and auditing requirements for individuals in business

Sole proprietors with a gross income below HKD500,000 are not required to submit any additional documentation when filing their tax return (B.I.R.60 – Tax Return Individuals). Profit and loss accounts and balance sheets must, however, be retained for at least seven years and be available for inspection. If gross income is more than HKD500,000, a certified copy of the balance sheet must accompany the tax return, together with the breakdown of calculation for tax.

The rules for accounting and auditing of partnerships are the same as that for sole proprietorships.

Private limited companies must file an annual profits tax return (B.I.R.51) with the Inland Revenue Department. Small companies (those with gross income below HKD500,000), dormant companies, the majority of branches of foreign companies, and companies incorporated in countries which do not require the maintenance of audited accounts, are generally exempted from the requirement to submit audited accounts alongside their tax return.

If the total gross income for the filing period was above HKD500,000, the tax return must be accompanied by a certified copy of the balance sheet, an auditor’s report and a profit and loss account, a tax computation with supporting evidence to show how the assessable profit or adjusted loss has been arrived at.

A completed return form (AR1 for the first year of business), for subsequent years, a less detailed from (either AR2 or AR3 depending on company structure) must be filed annually with the Companies Registry, although the company’s financial accounts are not required by the Registry.

The return must include a personal signature of either director or secretary and be accompanied by the appropriate fee, which will vary according to whether the company is a local entity, and whether the return is filed on time or not.

The form must be delivered either personally or by post to: Companies Registry, 14th floor, Queensway Government Offices. The appropriate registration fee must accompany the return, as the renewal of registration will take place at the same time as filing.

Additional reporting requirements for individuals in business

Sole proprietors must notify the Inland Revenue Department of any changes relating to the business name, address or nature of the business within one month of such changes.

General partnerships are also required to inform the IRD of change of address, partners, name or business nature within no later than one month of the change.

Limited companies must report a change of address, change of director or company secretary or change of personal details of director or company secretary within 14 days of the change. A company name change must be notified within 15 days of the resolution to change the name. Any increase in share capital must also be notified within 15 days and must be accompanied by the appropriate fee of HKD1 per HKD1,000 of increase, up to a maximum fee of HKD30,000.

Employers are required to file an employer’s return for each employee with the Inland Revenue Department, which then reconciles this with the salary return submitted by the employee. Employer’s returns must be filed by 30th April each year.

Under the Occupational Safety and Health Ordinance, businesses are required to report any accidents occurring at the workplace.

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Fact-File

Part 1: Hong Kong Business Formation for Individuals

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