ACCOUNTING & AUDIT

• All businesses in Hong Kong, whether there are incorporated or not, are required to prepare certain accounting documents.

Companies that fail to take all reasonable steps to comply with the rules may be liable to a fine of HK$300,000.

• Every Hong Kong-based company is required to appoint an auditor or a certified public accountant (CPA) for each tax year. This auditor or chartered accountant is responsible for preparing the company’s financial statements, which includes auditing the management accounts for submission to the Hong Kong regulatory authorities.

Companies that fail to take all reasonable steps to comply with the rules may be liable to a fine of HK$300,000.

• Upon receipt of the Profits Tax Return (PTR) sent by the tax authorities (IRD), any firm located in Hong Kong must, within one month, file its audited financial statements together with the tax calculation and possibly a request for offshore treatment of its profits. The IRD’s practice is to accept a delay for the first financial year if the request is made before the deadline. The request for an extension is generally rejected from the second year onwards.

The penalty is a fine of HK$1,200 imposed at a court hearing if no previous PTR showing a profit has been filed.

If a previous PTR mentioning a profit has been filed, taxation will be determined on the basis of the previous profits.

• The deadline for responding to any IRD request under bilateral tax information exchange agreements (TIEAs) or double tax avoidance agreements (DTAs) is generally one month. It is advisable to immediately appoint the company’s auditor (CPA) or a tax consultant with significant international tax experience to help prepare the response. However, this measure will not be sufficient if the company is not up to date with the preparation of its accounting documents and the audit of these documents.
• The above rules also apply to a firm that does not have a bank account or has not started trading. The certificate of no activity provided by a CPA is conclusive, while other certificates may not be deemed satisfactory by the IRD.

The penalty is a fine of HK$10,000 imposed at a court hearing, which may be supplemented by a court injunction to pay daily fines, within a set period, for failure to comply with the rules.