Top 8 Questions To Ask Your Accountant In Hong Kong

Starting a business in Hong Kong is an exciting venture, but navigating the complexities of accounting, tax regulations, and compliance can be daunting. 

Asking the right questions can make all the difference. At InCorp Hong Kong, informed decisions lead to success. 

Here’s a comprehensive guide to help you understand the questions you should be asking your accountant in Hong Kong and how the answers can positively impact your business.

1. What Business Structure Should I Choose for My Company?

The structure of your business plays a crucial role in defining your legal, tax, and financial obligations. In Hong Kong, you have such options as:

• Sole Proprietorship: A simple structure where the owner has complete control but bears all liabilities. This option works for small businesses but could limit your potential to scale.
• Partnership: There are two types: General Partnerships, where partners share responsibility and liability, and Limited Partnerships, where liability is limited to each partner’s capital contribution.
• Limited Liability Company (LLC): A separate legal entity that protects your personal assets from business liabilities. It’s ideal for entrepreneurs looking to scale and attract investors.
• Representative Office: If you have an established business overseas, setting up a Representative Office in Hong Kong allows you to explore opportunities without engaging in full business operations.

Also Read: The Different Types of Business Entities in Hong Kong

Tip:

Choosing an LLC is popular due to its tax advantages and scalability. When making this decision, consider your long-term goals and potential growth.

2. When Should I Set My Financial Year-End (FYE) Date?

Your financial year-end (FYE) determines the tax filings and audit deadlines. You can choose any date in Hong Kong, but the most common options are 31 December or 31 March. These dates align with the Hong Kong government’s calendar year or fiscal year, offering potential benefits such as tax extensions.

Tip:

Align your FYE with other related businesses for ease of consolidation or with your personal tax filing date if you’re a sole proprietor. Always select the end of a month to streamline your accounting process.

3. What Are My Annual Accounting Obligations?

In Hong Kong, all limited companies are legally required to prepare and audit their financial statements annually. This is vital to ensure compliance and accurate profit reporting for tax purposes.

Even if you haven’t generated income or have filed a NIL Profits Tax Return, you must still prepare accounts from the date of incorporation. Missing this obligation can lead to penalties and complications with the Inland Revenue Department (IRD).

Also Read: Guide to Taxation and Accounting in Hong Kong

4. Do I Need an Audit?

Yes, your company must undergo an audit if it is a limited company. Under the Hong Kong Companies Ordinance, financial statements must be audited and reported in compliance with sections 380 and 383. This is essential for filing the Profits Tax Return and maintaining stakeholder transparency.

Tip:

Audits provide more than just regulatory compliance—they help identify potential inefficiencies and areas for financial improvement.

5. What Are the Tax Implications for My Business Structure?

Your business structure affects how you are taxed in Hong Kong:

• LLCs are taxed at a two-tiered rate. The first HK$2 million of profits is taxed at 8.25%, and profits beyond that are taxed at 16.5%.
• Sole Proprietors are taxed as unincorporated businesses, with profits up to HK$2 million taxed at 7.5% and anything beyond 15%. Additionally, sole proprietors must declare their business income in their tax returns.

Tip:

Hong Kong does not impose capital gains tax, VAT, or tax on dividends. This makes it highly attractive for investors and businesses looking for tax efficiency.

6. What Are My Tax Filing Requirements?

All businesses must file a Profits Tax Return annually, and the deadlines vary based on your FYE:

• 1-31 December FYE (D-code): File by 15 August next year.
• 1 January – 31 March FYE (M-code): File by 15 November of the same year.
• 1 April to 30 November FYE (N-code): File by 2 May of the following year.

In addition, if you have employees, you must file the Employer’s Return of Remuneration & Pensions annually by April.

Tip:

Mark these dates on your calendar to avoid late filing penalties, which can add unnecessary financial stress to your business.

7. How Can I Withdraw Money From My Company?

Withdrawing money depends on your business structure:

• LLC Owners: You can withdraw through dividends (if there are sufficient post-tax profits), salary, or director’s fees, taxed as personal income.
• Sole Proprietors and Partners: You can withdraw money via drawings for personal use. However, accurate record-keeping is critical to ensure the legitimacy of business expenses and withdrawals.

Tip:

Consult your accountant about the most tax-efficient method of withdrawing money from your business while complying with local regulations.

8. What Expenses Can Be Claimed as Business Expenses?

Only expenses directly related to producing your business’s assessable profits are allowed under Hong Kong’s Profits Tax. Common claimable expenses include rent, salaries, office supplies, and travel costs.

Keep receipts and ensure that all expenses can be substantiated in case of an IRD audit. A well-maintained expense record can save you headaches during tax season and audits.

Tip:

Accurate documentation of business expenses helps avoid issues with the IRD and ensures you maximise your tax deductions.

Where To Next?

Asking the right questions is the first step toward ensuring your business is financially secure and compliant.

At InCorp Hong Kong, we provide comprehensive accounting services tailored to your business’s needs. Whether you’re a startup or an established enterprise, our team of experts ensures your financials are always in order, allowing you to focus on growing your business.

We handle everything from financial reporting to audit preparation and tax filing so that you can concentrate on what matters most—your business’s success.