Profit Tax

The relationship between the company's annual status and tax return submission

Companies with activities: All operating Hong Kong companies are required to submit tax returns and audited financial statements every year starting from April 2023.※(Note1)
If there is no activity: the Hong Kong company must register a dormant company at the Registrar's Office, and a special resolution must be submitted to the Companies Registry's Office to complete.※(Note2)
Apply for Zero declaration: After receiving the tax form, if you want to claim zero declaration, you should submit the profit tax form and the accountant's non-operating audit report.※(Note3)

(Note 1) Accounting and tax declaration process for a limited company

Generally, all enterprises need to do is to make accounts and declare taxes. According to Hong Kong's tax system, profits tax is only levied on the profits generated by operating in Hong Kong. Except for property leasing, any form of business operating in Hong Kong is required to declare profits tax.

For a limited company, the tax bureau will generally issue a tax return about 18 months after the company is established. The company must audit its finances and fill out a separate tax return to submit to the tax bureau.

Tax declaration process:

18th month of incorporation, first receipt of tax return from the Inland Revenue Department
Organize accounts, audit, fill in the tax return, submit the audit report and the completed tax return to the tax bureau within the specified time, and complete the tax return
The tax bureau assesses tax based on the audit documents provided by the company
The Inland Revenue Department completes the tax assessment and issues a tax payment notice stating the amount of tax payable
The enterprise pays tax according to the fee of the notice
Obtain receipts and complete tax returns

Audit process:

Organize business transaction records, documents and bank statements
Issue accounting statements in compliance with the Hong Kong accounting system
Appoint an auditor to conduct an audit
The auditor completes the audit and issues an auditor's report

In order to make the auditing work smoother, it is also very important for enterprises to prepare the materials required for auditing in advance. Relevant information includes audited financial statements of subsidiaries, copies of profits tax returns from the Inland Revenue Department, all financial statements, all sales/service agreements, employment contracts, lease agreements, all purchase invoices, receipts for all expenditures, bank statements, all Sales invoices and corresponding receipts, copies of any special permits, copies of incorporation documents, etc. After receiving the tax return for the first time, auditing and tax declaration needs to be done every year. Enterprises should also process the tax return as soon as possible after receiving the tax return, and file and pay taxes within the required time limit to avoid late fines or legal liabilities. As long as the enterprise develops the habit of retaining and sorting out relevant information in its daily operations, auditing and tax declaration is a step-by-step procedure. For more enquiry, please WhatsApp +852 91228720.

(Note 2) A dormant company refers to a Hong Kong limited company with no accounting transactions within a financial year.

If the company does not have any business activities or generate profits during the fiscal year (for example, it has not started operations or is ready to write off), it will be regarded as an "inactive company" or "dormant company", and it can apply to the tax bureau for exemption from accounting , audit and pay taxes, and carry out "zero declaration".

Dormant Status Application Procedure

A company needs to pass a special resolution authorizing its directors to make a statutory declaration and send that declaration to the Registrar of Companies to indicate that the company has become dormant. A dormant company cannot carry out related accounting transactions.

Note that the relevant "transactions" are those transactions within the meaning of Chapter 373 of the Companies Ordinance, which shall be entered in the company's accounting records, but exclude transactions arising from the payment of fees required by the Companies Ordinance.

If the dormant company has any relevant accounting transactions, the dormant company will be terminated from the date of the relevant accounting transactions. For more enquiry, please WhatsApp +852 91228720.

(Note 3) Necessary conditions must be met for apply for zero declaration

Many directors mistakenly think that a company is a "dormant company" if it does not carry on business, but in fact a "dormant company" must meet the following conditions:

Do not have any bank business account or have no funds in the account
No accounting, transaction records or any business dealings
In government agencies, there is a relevant record of "non-operating"

Where a limited company involves any of the following businesses, it will be regarded as "commencement of business", which means that it does not qualify for "zero declaration"

Stock investment
Investment holding
Group funds allocation
Consignment to sell in Hong Kong
Permitting or authorizing the use of materials such as patents or trademark designs in Hong Kong
Hire staff
Leasing office space
Involvement in any banking transaction

The process of applying for "zero declaration" is roughly as follows:

The company generally receives the tax return issued by the tax bureau in April
Confirm that the "zero declaration" condition is met
Entrust third-party accountants to provide non-operating auditor's report
Fill out the tax return within one month after receiving it, and apply for "zero declaration"

Why do many companies claim to be able to do "zero declaration" unconditionally?

This is because all files in the future will be signed and confirmed by the directors of the company, which means that all risks in the future will be borne by the directors of the company, and there is no relationship with the secretary company. Therefore, directors need to carefully examine their own situation and choose the correct method of accounting and tax declaration. For more enquiry, please WhatsApp +852 91228720.

The benefits of Hong Kong companies doing audit reports

Easy to manage
Accounting every year can keep good accounting and auditing records, which is conducive to checking accounts and management in the future. At the same time, through auditing, improve the quality of company management; understand the internal control system; protect the rights and interests of shareholders.
Improve corporate visibility and reputation
Many foreign businessmen will ask their partners to provide past accounting and audit records in order to understand the company's background and strength, and then consider whether to cooperate.
Losses continue to make up for next year's profits
After the Hong Kong company settles accounts and declares taxes, it will be recognized as a loss by the Hong Kong tax bureau, which can be offset against the profits generated in the future.
Bank financing
The company needs to have "audit reports" for 3 consecutive years, and they are all profitable, which is conducive to the credit review of Hong Kong banks.
Open letter of credit
Hong Kong companies audit their accounts every year, which is conducive to opening letters of credit. When issuing a letter of credit to a customer, the bank will review the customer's audit reports over the years, and decide the credit line to be issued to the customer accordingly.
Prepare for listing
When the company's business development is mature, if you want to expand the scale, you can choose to go public to raise funds, and keeping good company account records is a prerequisite for listing.
Cooperate with bank review
When encountering bank random checks, companies are also required to provide audit reports to cooperate with the bank's review.

The relationship between the company's annual status and tax return submission

(Note 1) Accounting and tax declaration process for a limited company

(Note 2) A dormant company refers to a Hong Kong limited company with no accounting transactions within a financial year.

(Note 3) Necessary conditions must be met for apply for zero declaration

The benefits of Hong Kong companies doing audit reports

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