Are you considering setting up a company in Hong Kong? Perhaps you have a Hong Kong Company but find it confusing to keep up with the compliance. Has your accountant suddenly reached out to you with a new charge that you are not familiar with? This article is to clarify the basic responsibilities that your Hong Kong Limited Company shall take up every year.
Annual compliance in Hong Kong
Annual compliance refers to a set of responsibilities a company should assume once it has been established. You must observe these compliance requirements according to your company’s fiscal year-end and the anniversary date. In Hong Kong, every private company must comply with the obligations administered by these two government entities:
– Companies Registry
– Inland Revenue Department
COMPLIANCE WITH THE COMPANIES REGISTRY
The Companies Registry is the department in charge of registering local and non-local companies in Hong Kong. It maintains records of active and dissolved companies.
Every year, a company should deliver an Annual Return, which contains its particulars, such as the registered office, shareholders, directors, company secretary. If the company does not file the Annual Return after 42 days of the deadline, the company will have to pay penalties. Please see the Annual Return Form “NAR1(Private)_Specimen-e” for your reference.
Business Registration must be renewed upon its expiry date. Normally, if you have applied for a one-year Business Registration, we recommend preparing the renewal of the Business Registration before the anniversary of the company. Please see Business registration specimen for your reference.
Significant Controller Register (SCR)
To enhance the transparency of corporate beneficial ownership, a company incorporated in Hong Kong must obtain and maintain up-to-date beneficial ownership information by keeping a Significant Controllers Register. The SCR register must be kept at its registered office address or a place in Hong Kong. In the latter case, the company must file a Form NR2 to the Companies Registry reporting the location of SCR. The Register should be open for inspection by law enforcement officers upon demand. Failing to do so will render the company and the responsible person of the company liable to fines.
COMPLIANCE WITH THE INLAND REVENUE DEPARTMENT
The company should prepare financial statements for each fiscal year. The periodicity of the reports will depend on the company and the need for the availability of financial information. The reports can be prepared on a monthly, quarterly, biannual, or annual basis.
Regardless of the size, companies in Hong Kong are required to audit their financial statements and present them together with a profit tax return to the Inland
Revenue Department. The audit should be performed on an annual basis.
Profits tax return (“PTR”)
Annual profits tax returns are normally issued to taxpayers on 1 April each year. Once a Profits Tax Return is issued, the company is required to lodge the completed PTR together with the profits tax computation and the duly signed audited accounts for the basis period. Please see “ebir51” regarding the format of the Profits Tax Return.
Hong Kong Salaries Tax is charged on the assessable income earned by an employee or an office holder in a year of assessment that runs from 1 April to 31 March of the following year.
As an employer, the company has the following reporting obligations to the Inland Revenue Department (“IRD”) if it anticipates that the company hires an employee who is likely to be chargeable to Hong Kong Salaries Tax.
i. Commencement return – The company has to file Form IR56E within 3 months of employing the employee
ii. Annual return – The company has to file Form BIR56A and IR56B. The annual return BIR. 56A is normally issued in early April and the filing deadline of the form (together with completed IR56B, where applicable) is within 1 month from the date of issue.
iii. Cessation return – The Company has to file Form IR56F (Employee who is about to Cease to be Employed) or IR56G (Employee who is about to Depart from Hong Kong) one month before the date of termination of the Philippines employee’s employment. IR56G has to be filed in the situation when the employee leaves Hong Kong for good or a substantial period of time usually in excess of 1 month. From the date of filing IR56G and until such time the employee has made tax clearance and can produce to the company a “letter of release” issued by the IRD, the company should withhold all amounts due to be paid to the employee (including salaries, commission, bonus, reimbursement of rent/expense, gratuity, money or money’s worth included).
Please note that the company does not have a tax withholding obligation except in the situation mentioned in (iii) above when the employee is about to depart from Hong Kong.
1. Understand the basic accounting and taxation system and practice in Hong
2. Review in-depth the service proposal you receive from the external accounting and secretarial services provider.
3. Establish a good habit of keeping and organizing business records from day one.
4. Don’t delay the declarations and reporting. This might lead you to the loss of information and records internally and the delay in presenting information to third parties like the banks, and penalties from the authorities.
5. For companies with a large number of transactions, it is important to prepare financial reports on a more frequent basis.
6. Review your financial reports. Once you receive the financial reports from your accountants, go through the information and seek clarifications if you have doubt. A responsible service provider will be able to answer your questions swiftly.
7. Keep your company statutory and business records up to date.
8. Update your bank at least once a year on the company status. Make sure your bank account has sufficient funds for bank charge deduction.
9. With the phased implementation of the Companies Registry’s New Inspection Regime starting from 2021, consult corporate secretarial specialists to ensure ongoing compliance with relevant regulations.
What CW can do for you
We can help you realise your ambitions of international expansion by taking care of all aspects of your business, from entry into Hong Kong and beyond, HK company set up, HK incorporation, company registration, business account opening – as well as ensuring ongoing compliance with tax, accounting, auditing and other regulatory requirements, identifying restructuring opportunities, managing your payroll to hiring and upskilling of staff.