How to prepare for the closing of the financial year in Hong Kong
Hong Kong companies must prepare accounting closing by submitting accounting and audit annually according to the provisions of the Hong Kong Companies Ordinance[1].
This work requires preparation and anticipation on the part of the company’s managers and all the players concerned. Here’s how to effectively prepare for the closing of your company’s financial year.
- Choosing your Financial year-end date
A company’s first financial year begins on its incorporation date and ends in a date specified by the directors that falls within 18 months after the incorporation date. The following financial years will end on the anniversary of such specified date.
Subsidiaries will generally benefit from having the same financial year-end date of their holding companies. This simplifies the consolidation requirements of the companies and will provide a better representation to the stakeholders, although there is no mandatory requirement in such sense.
Other popular financial year-end dates are 31 December in accordance with the calendar year, 31 March in accordance with the financial year in Hong Kong, or quarterly closing dates such as 30 June and 30 September.
From a tax perspective, companies incorporated in Hong Kong will receive its first profit tax return (PTR) from the local tax authorities called Inland Revenue Department[2] 18 months after the date of incorporation. The deadlines for the filing of the annual profit tax return are determined by the company’s year-end date. Companies closing their financial year-end on 31 December are required to submit their profit tax return within mid-August each year, while companies choosing 31 March as their financial year-end date will be required to file their profit tax return within mid-November each year. Deadlines for the filing of the profit tax return is at the end of April each year for other financial year-end dates.
- Accounting documents preparation and anticipation
Accounting entries shall be prepared in advance of the financial closing. Doing monthly accounting is the best way to prepare the annual closing as the accounts are made regularly, allowing accountant to check if any mistake was made during the year. This will allow to correct any mistake that was made and implement adjustments accordingly.
Financial statements
Financial statements are required to do audit report of the Company. In order to complete the audit, several statements have to be made and submitted to IRD:
- A statement of financial position (previously known as balance sheet) as at the end of the period
- A statement of comprehensive income (previously known as income statement) for the period
- A statement showing either all changes in equity or changes in equity other than those arising from capital transactions with owners and distributions to owners
- A statement of cash flow
- Accounting policies and explanatory notes
Documents that required for the Preparation of Financial Statement
To prepare the financial statements, companies will have to retain their accounting records including but not limited to:
- Sales: Invoice, Goods return note, Receipt slip, Daily receipt record
- Purchases: Invoice, Petty cash voucher, Payment slip, Check stub, Statement
- General expenses: Invoice, Payment receipt, Check stub, Payroll
- Transaction: Bank statements, Bank paid-in slip, Receipt, Check stub
- Tangible assets: Purchase and sale agreement, Invoice and receipt, Check stub
- Inventory: Purchase and sale agreement, Invoice and receipt, Check stub, Inventory lists
Other than financial and accounting documents, the company also has to submit various administrative documents and annual return.
Filing requirements
The main administrative declaration to be made by the company every year is the annual return[3].
You should deliver in respect of every year an annual return in the specified form (Form NAR1) for registration. The annual return contains the particulars of the company such as the address of the registered office, shareholders, directors, company secretary, etc. as at the made-up date of the return.
A local private company must in respect of every year deliver its annual return to the Registrar of Companies for registration within 42 days after the anniversary of the date of the company’s incorporation in that year (the prescribed time period).
If you are not sure when your annual return is due for delivery, you may use the Annual Return Filing Calculator[4] to calculate the due date.
Other filing requirements are needed depending on several factors such as the company form, equity operations made by the company during the year etc… These requirements are including but not limited to:
- NR1 form: Notice of Change of Address of Registered Office
- ND2A form: Notice of Change of Company Secretary and Director
- ND2B form: Notice of Change in Particulars of Company Secretary and Director
- NSC1 form: Return of Allotment
As shown above, a lot of preparation must be made in order to have a smooth annual closing. If you have further questions regarding the process of annual closing in Hong Kong, please feel free to contact us.
[1] https://www.elegislation.gov.hk/hk/cap622
[2] https://www.ird.gov.hk/
[3] https://www.cr.gov.hk/en/compliance/annual-return/private-company.htm
[4] https://www.cr.gov.hk/en/compliance/annual-return/calculator.htm
