All Hong Kong incorporated and registered entities are required, under the provisions of the Hong Kong Companies Ordinance, to maintain proper records and books of accounts and to comply with statutory audit requirements on an annual basis. Hong Kong has adopted the Hong Kong Financial Reporting Standards (HKFRS) framework, which is based on the International Financial Reporting Standards (IFRS).

The Hong Kong Institute of Certified Public Accountants (HKICPA) is responsible under the Professional Accountants Ordinance (PA Ordinance) for regulating the accountancy profession. Its functions include:

Maintaining a registry of all professional accountants and firms
Regulating the practice of accountancy professionals by establishing quality assurance reviews and an investigation and discipline systems for members and member firms
Setting ethical requirements for members
Setting auditing and accounting standards to be applied in Hong Kong
Setting initial professional development and continuing professional development requirements.

Under the PA Ordinance, HKICPA is responsible for certifying professional accountants in Hong Kong, including issuing the designation of Certified Public Accountants (CPA) and Certified Public Accountants Practicing. Having a practicing certificate issued by the HKICPA is mandatory for auditors.

There are also a number of sound commercial reasons to maintain accurate business records, which include:

Assisting with financial planning and decision-making
Demonstrating competence to partners, suppliers, investors and banks
Enabling submission of accurate and timely tax returns
Reducing compliance and audit costs

Whether you are a multinational, a small or medium-sized enterprise (SME), a brand-new start-up or an established business, Sovereign provides highly competitive accounting and audit services that will assist you to manage arrangements efficiently and effectively, focus on your primary business and explore more revenue opportunities, and reduce the operating and compliance costs.

By assisting with all the accounting, auditing, taxation and bookkeeping needs of your business, Sovereign’s Hong Kong CPAs will take your business to the next level.

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Bookkeeping and Accounting Services

Bookkeeping and Accounting Services

All Hong Kong-registered companies must maintain proper records and books of accounts, which must be audited annually by a Hong Kong-licensed Certified Public Accountant (CPA) and submitted to the Inland Revenue Department (IRD) along with your Profits Tax return.

Section 51C of the Inland Revenue Ordinance (IRO) requires every person carrying on a trade, profession or business in Hong Kong to keep sufficient records (in the English or Chinese language) of income and expenditure to enable the assessable profits to be readily ascertained.

Such records shall be retained for a period of not less than seven years. Failure to comply with the requirements of the IRO without reasonable excuse may be liable to a maximum fine of HKD100,000.

The records prescribed in the IRO include:

  • Books of accounts recording receipts and payments, or income and expenditure
  • Vouchers, bank statements, invoices, receipts
  • Records of the assets and liabilities in relation to that trade, profession or business
  • Records of all entries from day to day of all sums of money received and expended in relation to that trade, profession or business
  • Where that trade, profession or business involves dealing in goods:
    • A record of all goods purchased, and all goods sold in the carrying on of that trade, profession or business must be provided in sufficient detail to enable the Commissioner to readily verify the quantities and values of the goods and the identities of the sellers and buyers, and all related invoices
    • Statements of trading stock held by the person at the end of the accounting period and all records of stocktakings from which any such statement of trading stock has been prepared
  • Where that trade, profession or business involves the provision of services, records of the services must be provided in sufficient detail to enable the Commissioner to readily verify the entries.

Outsourcing your accounting and bookkeeping requirements will reduce the time, resources and costs needed to keep and maintain accurate accounts, allowing you to focus on your business. Sovereign’s in-house team of Hong Kong CPAs will work alongside clients in Hong Kong to provide fully outsourced accounting facilities, including:

  • Bookkeeping and Reporting Services
  • Preparing bank reconciliation
  • Re-invoicing Services
  • Payment Processing Services, which includes:
    • Verifying the validity of the charges and the accuracy of the original supporting bills and invoices presented for payment
    • Preparing and arranging payments in accordance with your company instructions and proper authorisations
  • Preparing monthly cash movement summary of all payments and receipts.
  • Posting all data to designated accounting software (if applicable)
  • Preparing a general ledger
  • Preparation of monthly/ annual management accounts in accrual basis, including a profit and loss statement and balance sheet

Hong Kong Profits Tax

Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. There is therefore no distinction made between residents and non-residents.

A resident may therefore derive profits from abroad without suffering tax; conversely, a non-resident may suffer tax on profits arising in Hong Kong. The question of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong is largely one of fact, but some guidance on the principles applied can be found in cases considered by the Hong Kong Courts and the Privy Council. No tax is levied on profits arising abroad, even if they are remitted to Hong Kong.

Hong Kong Profits Tax Filings

If you carry on a trade, profession or business in form of a corporation or partnership business, or if a non-resident person is chargeable to profits tax in your name, you should complete the Profits Tax return and file to the Inland Revenue Department (IRD) by the due date. Supplementary forms to Profits Tax returns were introduced to report information on preferential regimes and tax incentives. The supplementary forms, being part of the return, should be filed together with the return.

Generally, a newly registered business will receive its first Profits Tax return some 18 months after the date of commencement of business or the date of incorporation. Subsequently, the annual exercise to issue Profits Tax returns in bulk takes place on the first working day of April each year.

If a taxpayer fails to comply with the requirements, the Commissioner is empowered under the relevant punitive provisions to compound, institute prosecution and assess additional tax in respect of the offence. The maximum penalty for non-compliance is HKD10,000, plus three-times the amount of tax undercharged. If taxes have been underpaid, the IRD may impose an additional 5% of the taxable amount as a penalty.

Appointing Sovereign as your Tax Representative in Hong Kong will ensure compliance with all relevant requirements and minimise your costs. Our Tax Compliance services include:

  • Identifying the best approach to satisfy the IRD and acting as the Tax Representative of the company in all dealings with the IRD
  • Preparing the relevant tax returns together with the supporting tax computations (if applicable) for the company’s review and approval
  • Claiming tax exemptions (no tax is levied on profits arising abroad)
  • Preparation / submission the tax returns, tax computations and audited financial accounts to the IRD and obtaining the IRD tax assessment.
  • Responding general IRD tax queries

Statutory Audit

Annual financial statements of every limited company incorporated in Hong Kong are required to be audited by a qualified accountant with a practicing certificate issued by the HKICPA in accordance with the Hong Kong Companies Ordinance.

Statutory audit reports are examinations of a company’s financial reports, conducted by an independent party to comply with the disclosure requirements set out in the Companies Ordinance and tax obligations outlined in the Inland Revenue Ordinance.

A Hong Kong Statutory Audit must be conducted under the HKFRS framework, or under the SME-FRF & SME-FRS if the company satisfies the ‘reporting exemption’ criteria as set out in section 359 of the Companies Ordinance for Small and Medium Sized Enterprises (SMEs). For non-Hong Kong companies, the audits of financial statements may be conducted in accordance with international auditing standards.

For taxation purposes, companies incorporated in Hong Kong must submit audited financial statements to the IRD along with their Profits Tax return.

For newly incorporated private companies, the first set of audited financial statements should be submitted to shareholders at the Annual General Meeting (AGM), within nine months (six months for existing companies) after its financial year-end. Subsequent AGMs should be held not more than 15 months apart. There is no mandatory year-end date for Hong Kong companies, but 31 March or 31 December are generally chosen.

The following information is required for a Hong Kong Statutory Audit:

  • Annual financial statements will include a balance sheet, an income statement, a statement of changes in equity, and a cash flow statement.
  • All sales/service agreements, employment contracts, tenancy agreements for the assessed period
  • All sales invoices, purchase invoices and expenses receipts for the assessed period
  • Bank statements
  • Complete list of affiliated companies and affiliated persons
  • Audited financial statements of subsidiary companies
  • Copies of any special licences, if applicable
  • Copy of company’s registration documents:
    • Updated business registration certificate
    • Incorporation certificate
    • Articles of association
    • Annual Return

Sovereign’s experienced team of audit service professionals will work with your company to gather all the necessary records and ensure that they are in a good order as required. We can further assist clients to arrange non-statutory auditing services, such as company valuations or due diligence reviews, to identify any issues or under-performing assets.

Payroll & Human Resources (HR)

Payroll & Human Resources (HR)

Companies must pay employee salaries on time and ensure compliance with all tax and social security obligations in respect of calculating, reporting and withholding. The Hong Kong Employment Ordinance covers all employees and provides rights and protections in respect of contract terms, statutory holidays, Mandatory Provident Fund (MPF) payments, sick and maternity leave, severance and long-service payments.

Employers in Hong Kong must keep proper records for each employee and report remuneration paid on an annual basis. All accounting and payroll records must be kept for at least seven years.

Sovereign’s outsourced payroll and HR services will ensure that payments are made accurately and on time, while maintaining a very high level of compliance and security.

  • Payroll administration
    • Payroll – set-up and maintenance
    • Payroll calculation and payments
    • MPF enrolments and contributions
    • Distribution of pay slips to employees
    • Preparation of payroll reports
  • HR administration
    • Personnel records – set-up and maintenance
    • Administration of holiday/leave records
    • Assistance with recruitment, termination and retirement
    • Advice on employment regulations
    • Arranging business insurance quotations
    • Preparation and filing of tax forms (Employer’s Return, IR56B/E/F/G)
    • Additional HR Support
    • Handling employees’ questions / meetings
    • Assisting with recruitment and redundancies
    • Preparing standard job descriptions
    • Drafting contracts of employment and statements of particulars a pre-agreed basis
    • Preparing standard employee handbook
Get in Touch

Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.