What is Annual Examination for Hong Kong company? 

The specific work of an Annual Examination for a Hong Kong company includes renewal of the Business Registration Certificate and the delivery of an Annual Return. In Hong Kong, the Business Registration Certificate is only valid for one year and has to be renewed regularly after the anniversary date of incorporation of the company. In addition, the Companies Registry requires a company to deliver an Annual Return after the anniversary date of incorporation of such company, giving an update on the state of affairs of the company during last year, including such information as the number of shareholders of the company, the names of the shareholders and their shareholdings and its operating.

How would a Hong Kong company conduct the Annual Examination?

Mega Solutions provides Annual Examination service for Hong Kong companies. Our existing clients are only required to sign on the acknowledgement and the Annual Return file while a new client has to provide us with the copies of Certificate of Incorporation, Business Registration Certificate and NCI.

When would a Hong Kong company conduct its Annual Examination?

Hong Kong government requires a Hong Kong company to renew its Business Registration Certificate and deliver an Annual Return on the anniversary date of the incorporation of the company. The company may incur avoidable fines and credit risk caused from any late delivery.

What fees would a company have to pay to the Hong Kong government for an Annual Examination? 

For an Annual Examination, a company is subject to a Business Registration Certificate fee of HK$2,250 and an Annual Return fee of HK$105.

What if a company fails to conduct an Annual Examination?

It will be fined. For late renewal of the Business Registration Certificate, the company is subject to an additional fine of HK$300 every year in additional to the payment of all outstanding government fees. For late filing of an Annual Return, the amount of the fees or fine increases as shown below.

The shareholders and directors of the company are liable to prosecution and, if convicted, pay the default fines. For each default, the maximum amount of the fine is HK$50,000.

A company have not traded in the past few years. Why do we still have to deliver annual returns for registration?

Every company registered under the Companies Ordinance is required to comply with the requirements of the Companies Ordinance, including delivery of an annual return together with the requisite registration fee within the prescribed time period in each calendar year. Private companies (other than those which have declared dormant and delivered the relevant special resolutions to the Companies Registry under section 5 of the Companies Ordinance) are required to deliver annual returns within 42 days after the anniversary of the date of incorporation of the company for registration.

A company has no business and cannot afford to pay the higher registration fee for the annual return. Can the registration fee of the annual return be waived?

No. The Registrar of Companies has no discretion to waive registration fees under the Companies Ordinance. If the company no longer carries on business, you may consider applying to the Registrar of Companies for deregistration under section 750 of the Companies Ordinance (Cap. 622) or arranging for the company to be wound up under Part V of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32).

What document should a company deliver to the Registrar of Companies for registration in order to declare the company dormant?

According to section 5 of the Companies Ordinance, a private company may pass and deliver to the Registrar of Companies for registration a special resolution declaring that the company will become dormant.

When will a company become dormant?

If a company passed a special resolution (specimen in pdf Format) declaring that the company will become dormant, the company is a dormant company as from:

1. the date of delivery of the special resolution to the Registrar of Companies; OR
2. any later date that is specified in the special resolution.

After the anniversary date of incorporation of company this year, the company delivered a special resolution declaring that the company would become dormant as from the date of delivery of the special resolution to the Registrar of Companies for registration. Does the company need to deliver the annual return for this year for registration?

Under section 663 of the Companies Ordinance, the requirement to deliver annual return for registration does not apply to a dormant company. However, a private company is still required to deliver an annual return for the year in which it declares itself to be dormant if the effective date on which the company becomes dormant falls after the 42nd day after the anniversary of its date of incorporation.

When will a dormant company cease to be a dormant company?

A dormant company will cease to be dormant :

1. if a special resolution (specimen in pdf Format) declaring that the company intends to enter into an accounting transaction is delivered to the Registrar of Companies for registration; OR
2. if there is an accounting transaction in relation to the company.

If a dormant company has delivered to the Registrar of Companies a special resolution declaring that the company intended to enter into an accounting transaction and ceased to be dormant this year, do the company need to deliver the annual return for this year for registration?

A private company which has ceased to be dormant will be required to deliver an annual return for the year in which it ceased to be dormant if the effective date on which it ceased to be dormant falls on or before the 42nd day after the anniversary of its date of incorporation.

If a dormant company enters into an accounting transaction, will the company still be exempted from the delivery of annual return?

If a dormant company enters into an accounting transaction, the company ceases to be a dormant company. The exemption from delivery of annual return ceases to have effect on and after the date of the accounting transaction.

How Hong Kong company incorporated process annual accounting and auditing?

It can entrust professional Certified Public Accountant's firm to process. Mega Solutions provides complete accounting and auditing services. The company only needs to provide invoices, monthly bank statements, bills, pay record and other information, in which to help conduct accounting and auditing work.

Does the annual financial statements of a Hong Kong company have to be audited?

In accordance with the Hong Kong Companies Ordinance (Chapter 32), every Limited Company needs to appoint an independent auditor to prepare annual audited accounts to the company's shareholders.  In addition, the Hong Kong Inland Revenue Department will also require companies to submit their tax returns attached with audited financial statements, as reference information.

How is the accounting year (base period of assessment) determined?

The year ended on 31 March or 31 December commonly. The year ended by the end of other month as permitted.

Do the company need to retain the business records, and if so, for how long?

Yes, records relating to any business transaction must be retained for at least 7 years after the completion of the transactions, acts or operations to which they relate. Failure to keep sufficient records may result in a fine of up to $100,000, and estimated assessments being raised on your business.

What business records do the company need to keep?

You may download a copy of the Information Pamphlet "A GUIDE TO KEEPING BUSINESS RECORDS" from IRD for reference.

If a limited company receives a notification of "no Profit Tax Return to be issued to the company", does it mean that the company does not need to prepare its audited account?

No. The notification of "no Profit Tax Return to the company " only means that there will be no Profit Tax Return issued actively from the IRD. However, it is the responsibility of the limited company to apply for the Profit Tax Return and submit it to the IRD with an Audited Account whenever a profit is recorded in the business. In accordance with the Hong Kong Companies Ordinance (Chapter 32), every Limited Company needs to appoint an independent auditor to prepare annual audited accounts to the company's shareholders.

What are the taxes of Hong Kong taxation?

There are three kinds of taxes in Hong Kong taxation: Profits Tax, Salaries Tax and Property Tax.

Profits Tax shall be 16.5% of the taxable profits of the company; Salaries Tax shall be calculated by salary income at progressive tax rate, and paid up to 15% of total salary income; Property Tax 15% of the net rent income earned from owning properties after deduction of 20% standard tax relief for renovation and expenditure.

What tax does Hong Kong company need to pay every year? 

Hong Kong company needs only to pay Profits Tax every year, which is calculated by 16.5% of the profits. The company without profits needs to pay no Profits Tax.

When should a limited company submit the Profit Tax Return once incorporated?

Every limited company will receive their first Profit Tax Return from the Inland Revenue Department (IRD) 18 months once incorporated. Then the Profit Tax Return will be issued in April (normally) every year thereafter.

How to manage the tax payable?

Once the Profit Tax Return is submitted to the IRD, a notification of tax payable will be issued by the IRD officer to the limited company. The company shall then pay the tax before the due date.

What is Provisional Profits Tax payable?

Profits Tax shall be levied according to the actual profits of the taxable year. Since the profits of one year shall be determined only after the end of year, Inland Revenue Department will levy provisional tax before the end of that year. After the profits of relevant year are assessed in the following year, the provisional tax already paid can be deducted from the Profits Tax payable of this year.

Can the profits of a Hong Kong company offset the losses of previous year?

Losses incurred in a taxable year can be carried forward and used to offset the profits of the company in subsequent years.

In which case will Hong Kong company be free from Profits Tax?

If the corporate profits do not arise from Hong Kong, and the company has not set up an office in Hong Kong nor hired Hong Kong employees, then its earned profits will be exempt from Profits Tax.

Does Hong Kong need to levy tariffs on imported/exported commodities?

Generally imported/exported commodities need not be levied tariffs, except tobacco, liquor and petroleum. But import/export commodities must be declared at customs.

My Hong Kong company only opens account at bank, to collect and pay bills for other China Company, then does this Hong Kong company need to process accounting, auditing and tax declaration?

Yes. Because company incorporation is profit-oriented, even if the company in Hong Kong only performs the role of collecting and paying for others, it shall be deemed as agency service business, and its income shall be the commission for collection and payment for others.

My Company only opens an account at a foreign bank in China and does not open account in Hong Kong; shall the business conducted by my company be free from tax declaration?

No. According to Hong Kong laws, all Hong Kong company has the obligation to declare its financial condition to Inland Revenue Department, whether its business takes place in Hong Kong or not. If this company does not have its source of income in Hong Kong, it can apply to Inland Revenue Department for exemption from taxation.

What restriction will Inland Revenue Ordinance have on deduction for donation?

Donation granted to recognizable charitable organisation is permitted to be deducted, but total donation as required shall not be less than $100 and not more than 35% of assessable profits.

If a limited company receives a notification of "no Profit Tax Return to be issued to the company", does it mean that the company does not need to prepare its audited account?

No. The notification of "no Profit Tax Return to the company " only means that there will be no Profit Tax Return issued actively from the IRD. However, it is the responsibility of the limited company to apply for the Profit Tax Return and submit it to the IRD with an Audited Account whenever a profit is recorded in the business. Therefore, it means that a limited company should prepare its audited account every year.

What tax obligation does an employer have?

• On hiring the employee, employer have to maintain a record of that person's :
  1. personal particulars (name, address, identity card or passport number with country of issue, marital status)
  2. nature of employment (full time or part-time)
  3. capacity in which employed (e.g. sales manager, salesman, worker, in-house lawyer, accountant, director)
  4. amount of cash remuneration (regardless of denomination in domestic or foreign currency and remuneration paid overseas)
  5. non-cash and fringe benefits (such as quarters, holiday journey benefits, share award, share option)
  6. employer's and employee's contributions to the Mandatory Provident Fund (MPF) or its equivalent
  7. employment contract and amendments to terms of employment
  8. period of employment

• employer have to inform the Inland Revenue Department ("IRD") the following:
  1. any change in the employee's personal particulars (such as change in residential and postal address, change in marital status)
  2. any change in the employee's terms of employment (such as a change from full time to part-time)
  3. the Hong Kong Identity Card No. of the employee
  4. complete Employer's Return (BIR56A) and lodge with IRD within 1 month for reporting remuneration paid to an employee
• Business owners are required to keep business accounting records, including payroll records, for at least 7 years.