Accounting Standards
According to section 373 of the Companies Ordinance, a Hong Kong company must keep accounting records that are sufficient to explain transactions of the company and to disclose the company’s financial position and performance with reasonable accuracy. The records should enable the directors to ensure that the financial statements comply with this Ordinance. For example, these records can be the daily entries of the money received and expensed, the record of the company’s assets and liabilities. Proper maintenance of the accounting records should be ensured in a safe and accurate booking. The record may be kept in hard copy form or electronic form while it is mandatory to keep all these records for 7 years from the end of the financial year. They also serve to meet satisfactory statutory audit requirements, such as the preparation of financial statements. Hong Kong companies must prepare an audit of the financial statements every year. You may seek professional accountants for accounting services and preparation of the audited report.
1. Do I need a Hong Kong accountant to prepare my books and audit report?
Yes. You must appoint a Hong Kong Licensed Certified Public Accountants (HKCPA) to prepare and submit your audit report based on the Hong Kong Accounting Standards.
2. Which companies need to follow the Hong Kong Accounting Standards (HKAS)?
All companies registered in Hong Kong must follow the Hong Kong Accounting Standards.
3. Do I need to prepare accounting for my offshore company in Hong Kong?
Yes. The HKSAR government requires all companies incorporated in Hong Kong to prepare and submit financial records of all transactions including profits, revenues and expenses.
4. Do I need to audit the accounts if my Hong Kong company is inactive or the turnover is very low?
The company must submit audit reports when IRD officer requests you to do so.
5. What is the tax rate of profit tax in Hong Kong?
8.25% for the first HK$2,000,000 profits. Remainder of the profits will be taxed at 16.5%.
6. When is the first time to prepare and submit accounting reports?
The HK Government will usually issue the first tax form 18 months after the date of incorporation. That is when you need to submit your first audit report.
7. How often does a company prepare financial statements?
By law, a company prepares a complete set of financial statements at least once a year.
8. What expenses could be deductible from assessable profits?
Expenses and outgoing that are wholly incurred in the production of the assessable income could be tax deductible. For example, equipment, rental fee, research and development expenses, approved charitable donations, etc. Please refer to IRD deduction at https://www.gov.hk/en/residents/taxes/salaries/allowances/deductions/index.htm
9. What expenses could NOT be deductible from assessable profits?
Domestic, private expenses or any expenses that are not related to the profit production. Expenses related to property that is not occupied for profit-generating purposes are also not tax deductible.
10. What is the affordable online accounting software for entrepreneurs?
Xero, Freshbooks, Quickbooks are the most affordable accounting software for small business. They benefit small business owners to track accounts receivable and accounts payable and have a clear understanding of their profitability.
11. How does accounting software work?
Most software are now synced with business bank accounts. Whenever there is a transaction, it will appear in a queue and it can be classified into the categories found on the business’ chart of accounts. Business owners can easily generate a financial report to review profitability, compare revenue and costs.
12. How much does accounting software cost for small business?
A small business accounting software ranges from HK$100 to HK$1500 per month depending your business needs.
13. How should we choose accounting software for small business?
Cost, scalability, ease of use, accounting features and reputation are the four main elements to look into consideration when choosing an accounting software.
14. Can accounting software replace accountants?
No. While accounting software store and analyze data, a certified accountant can provide you with sound financial and compliance advice. There is nothing that can replace the relationship with a human-accountant. Expert accounting help is important.
15. How should I choose between using an expert accountant or an accounting software for my business?
Depends on the complexity of your business. If your time is gold and want to get a peace of mind, you shall look for a local accountant who understands the tax and accounting regulations.
16. Who should I go to if I need an accountant to help with my book?
Please contact info@cheapincorp.com. We can connect you with an experienced accountant. You may enjoy the friendly referral pricing.
17. How long should transaction records be kept?
Records shall be retained for a period of not less than 7 years. Failure to comply with the Inland Revenue Ordinance without reasonable excuse may be liable to a maximum fine of $100,000.
18. When can I declare dividends?
Dividends must be approved by the board of directors before they may be paid out.
19. What is the difference between salaries and dividends?
Salaries are a company expense to employees for their services and hard work while dividends are investment returns to the shareholders, according to the proportion of shares that they hold.
20. Can I pay salaries to myself?
Yes. Directors shall sign a formal employment contract stating clear terms of monthly salaries.
21. Can I use my personal account for my business?
No. Company owners and the company itself are treated and viewed as two separated legal entities at law. You should not use personal account for your business.
22. Can my accounting be skipped if I set up an offshore company?
No. Your accounting cannot be skipped even if your company has no business involved in Hong Kong.
23. Do I still need to audit my company accounts If my business has not commenced business yet?
If your business has yet to commence, you are required to report “not yet commenced” status to the IRD. A NIL Profit Tax Return is required to file.
24. How to determine whether my business has commenced or not?
It is that your company has no transactions, no sales incurred during the period.
25. What happens if I delayed the Profit Tax Return submission?
Late submission in Profit Tax Return and accounting supporting documents may subject a penalty payment of HK$10,000. You may also be subject to prosecution.
