Neat Team July 22, 2021 9:05 am

Accounting and taxes in Hong Kong: A small business owner’s guide

Being an entrepreneur means wearing many hats. One of them is being an accountant so that you are aware of your tax-related obligations. In this article we’ll unpack some important tax and accounting fundamentals to give you the confidence and clarity you need to stay in business and continue to grow your business.

What’s the benefit of being accurate in accounting all year round?

Accounting accuracy is one of the fundamentals of being a business, but don’t underestimate its importance. Maintaining detailed and orderly records of anything (and everything) accounting-related when it comes to your SME means: 

  • Your business stays compliant with Inland Revenue Department (IRD)
  • The opportunity to make the most out of allowable expenses
  • The chance to legally reduce tax obligations
  • End-of-year financial statements will be quicker to prepare;
  • Plan your business’s path to a prosperous future;
  • Run your business with more confidence.

What date is my annual return due?

With the exception of the first year, you’re obligated to submit your company’s Annual returns every calendar year within 42 days of the initial incorporation date. This means submitting the Annual Return (Form NAR1) regardless of whether or not the fundamental information of your company has changed year-on-year.

Annual registration fees according to company type:

  • Public Company: HK$140
  • Company Limited by Guarantee: HK$105
  • Private Company: HK$105

What if I don’t submit my annual return on time?

here’s an allotted time frame that you’re expected to submit your annual return. If you don’t adhere to this, you could face some hefty penalties and risk prosecution for breaching Companies Ordinance. The key is to submit timely because the later you are, the higher the fine you’ll face.

Take a look:

Profit tax returns:

This happens in April. The IRD issues a profits tax return form (BIR51 form) if you’re a company carrying out business in Hong Kong. Recruit the help of a certified public accountant to help you file your corporate tax online. 

Profits tax rate: 

The good news is that you’re able to benefit from Hong Kong’s two-tier taxation where your first HK$2,000,000 is taxed at 8.25%. Anything over that is taxed at 16.5%. Remember to keep all business-relevant financial records for at least seven years.

Are there any other obligations to the government?

  1. Establish a registered address: A physical mailbox where all business-related correspondence will go. 
  2. Appoint a Company Secretary: They’ll handle any reporting, structural company changes and tax and accounting according to government regulations.
  3. Get a Business Registration Certificate: You’ll need to apply for this and also get it updated every year. 

Tax returns: Documents you’ll need

It’s important to anticipate and gather the key documents that will inform your tax return. 

Here’s what they include at a glance:

  • An Audited Financial Statement
  • Tax Computation

What are the methods to submit my profit tax returns?

There are 3 types of profits tax return forms that can be submitted to the Inland Revenue Department depends on the type of your corporation or partnership business.

  • Corporations (BIR51)
  • Persons Other Than Corporations (BIR52)
  • In Respect Of Non-Resident Persons (BIR54)

You can submit them in two ways: 

  • Hard copy: Fill the the Profits Tax Return sent by IRD. Then submit your signed tax papers. 
  • Electronically: It’s easy to complete your tax return with the Profits Tax Return e-Filing Services. Once you’ve filled out your form, export it as an XML file and then upload it via the e-filing platform or just fill in the online version.

Need more official info? This handy link features all the PDF forms and some how-to instructions.  

Summary: 6 tips for accounting accuracy 

  1. Identify & document revenue streams
  2. Stay on top of invoices & receipts
  3. Prepare financial statements
  4. Track all deductible expenses
  5. Optimise or automate when you can
  6. Partner with professionals who’ll guide you

What’s next?

Now that you’ve got a better idea about accounting standards as a small business owner in Hong Kong, we’ve got a bit more inspiration to share that’ll help you stay adaptable and resilient:

If you are interested in incorporating your business in Hong Kong take a look at our incorporation page.

This blog was written by one of our partners, Osome

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