Services · Audit & accounts for foreign companies

Hong Kong audit and reporting

Mandatory annual audit, the profits tax return, deadlines by accounting date code and the offshore claim. Open pricing, final quote fixed in writing before work starts.

The short version

Hong Kong is sold as a low-tax place with very little paperwork. The first half is true, the second is not. The profits tax rate is genuinely low and foreign-source profits can escape tax entirely, but the price is discipline: nearly every Hong Kong company must be audited each year by a locally practising CPA and must file a tax return, even in a year with no turnover.

We run the full reporting cycle for a Hong Kong company. We collect and process source documents, prepare financial statements under Hong Kong standards, hand the file to a practising CPA for audit, prepare the tax computation and file the profits tax return with the Inland Revenue Department (IRD). We also cover the adjacent obligations: the annual return to the Companies Registry, business registration renewal, the employer's return, supporting an offshore claim, responding to IRD queries, apostilling accounts and deregistering the company if the business is over.

Below is the mechanics: what the law actually requires, on what deadlines, at what rates, how the exemption for foreign profits is supported and what happens if you are late. Figures are current as of September 2026; the IRD confirms exact filing dates by circular each year, so we re-check them before filing.

What a Hong Kong company files every year

The obligations sit with two authorities on two different calendars: the Companies Registry handles the corporate side, the IRD handles tax and business registration. A common owner mistake is to assume that renewing the business registration certificate means the filings are done. They are separate things.

The employer's return is filed even with no staff - in that case as a nil return. Directors' fees, including fees paid to a non-resident director, also belong in that return, and this is routinely missed.

The audit is mandatory for everyone, with no turnover threshold

The requirement sits in Part 9 of the Companies Ordinance (Cap. 622): directors must lay audited financial statements before the members for every financial year. There is no revenue, asset or headcount threshold below which the audit falls away. That is a real difference from the UK, Cyprus or the UAE, where small companies are often exempt.

Hong Kong does have a reporting exemption for small private companies. It applies where the company meets two of three tests: revenue up to HK$100 million, total assets up to HK$100 million, up to 100 employees. Eligible private companies can use higher thresholds of HK$200 million with 75% member approval, and any private company can enter the regime by unanimous written agreement of the members. But the exemption only reduces disclosure - the accounts are prepared under the simplified SME framework with fewer notes. The audit stays.

The only genuine carve-out is formal dormancy. The members pass a special resolution under s.5 of the Companies Ordinance and file it with the Companies Registry; only then is the company relieved from preparing and auditing accounts for the period it stays dormant.

This is where the most expensive misunderstanding lives. The company had no activity and the company is dormant are not the same statement. Without the resolution on file, the audit is due even if the only movement in the year was a domain renewal, a bank charge or a company secretary fee. A formally dormant company must have no accounting transactions at all, and business registration fees and Companies Registry fees are excluded from that test, which is why the route does not fit every idle company.

The first audit covers the period from incorporation and can run up to 18 months. After that the financial year is normally set at 12 months.

Auditor requirements: who may sign the report

Only a CPA (practising) holding a valid practising certificate from the Hong Kong Institute of Certified Public Accountants, working in a firm or corporate practice registered with and supervised by Hong Kong's accounting and financial reporting regulator, can sign the audit report. A foreign auditor, an accountant from another jurisdiction, or the in-house bookkeeping arm of a company secretary without a practising CPA cannot issue it - formally, it would not be an audit.

The second requirement is independence. The auditor cannot keep the books of the same company and then audit its own work. The workable arrangement is therefore split: one side keeps the records and prepares the statements, an independent side issues the opinion. That is exactly how we work - accounting, statements, tax computation and communication on our side, the opinion issued by an audit firm.

What to check in a finished report: the name of the firm and of the engagement partner, the practice number, the signing date, and whether the reporting period matches your financial year. Banks, counterparties, foreign tax authorities and buyers of the business read that page first. A qualified opinion, or a disclaimer of opinion, is read too, and creates friction at the next bank review.

The profits tax return and deadlines by accounting date code

The IRD issues profits tax returns in bulk on the first working day of April. Formally you have one month from the date of issue. In practice almost everyone files through a tax representative under the extension scheme, and then the deadline depends on the company's financial year end. That date sets the accounting date code: N, D or M.

The dates above relate to the year of assessment 2025/26. The IRD confirms them by circular each year and occasionally grants further extensions during the season, so we verify the final date at the point of filing.

There is a practical conclusion here: the financial year end is a management decision, not a formality. Years ending 31 December and 31 March give the longest runway, and a loss-making year ending 31 March pushes filing into February of the following calendar year. A summer year end lands in code N and leaves the least time.

The first return is issued roughly 18 months after incorporation, with about three months to file from the date of issue. The block extension scheme does not automatically cover that first return, so new companies usually hit their first deadline sooner than they expect.

Electronic filing. From the year of assessment 2025/26 it is mandatory for Hong Kong entities within in-scope multinational groups under the global minimum tax rules, broadly groups with consolidated revenue of at least EUR 750 million in two of the four preceding fiscal years. Those entities file the return together with accounts and tax computation in iXBRL format. The next phase is expected in 2028 based on a turnover threshold, with full mandatory e-filing targeted for 2030. Everyone else can e-file voluntarily today, and that already buys an extra month. Supplementary forms are attached where preferential regimes apply.

The two-tiered profits tax rate

Since the year of assessment 2018/19 Hong Kong applies a two-tiered regime: the first slice of profits is taxed at half the rate, the rest at the normal rate.

On profits of HK$5,000,000 the maths is: HK$2,000,000 at 8.25% gives HK$165,000, the remaining HK$3,000,000 at 16.5% gives HK$495,000, HK$660,000 in total, an effective rate of about 13.2%.

One restriction matters. Within a group of connected entities, only one entity can claim the two-tiered rates in a given year of assessment. Every other connected entity pays the flat rate from the first dollar. Connection is tested through control: a common controlling holder or parent. The nomination is made annually in the return, so it makes sense to give it to whichever company expects the highest profits that year.

For the year of assessment 2025/26 the budget provides a one-off 100% reduction of profits tax capped at HK$3,000. It is applied automatically on assessment and changes nothing about the filing obligation.

Wider picture: Hong Kong has no VAT, no withholding tax on dividends or interest, and no separate capital gains tax. The last point does not mean any asset sale can simply be labelled capital - the capital nature of a transaction is established on the facts and the IRD does test it. Royalties paid to non-residents are taxed at source, with an effective rate that depends on whether the parties are associated; confirm the figure at the time of payment. Tax losses carry forward indefinitely and cannot be carried back.

The offshore claim: how the exemption for foreign profits is supported

Hong Kong taxes on a territorial basis: profits arising in or derived from Hong Kong are taxable, foreign-source profits are not, even if the money lands in a Hong Kong bank account. The claim is made in the return, and the IRD usually follows with a detailed transaction-level questionnaire.

The key test is the operations test. The broad guiding principle set out in the IRD's practice note on source is straightforward: you look at what the taxpayer did to earn the profits in question and where he did it. The place of incorporation, the director's nationality, where the bank account was opened and where the website is hosted carry no weight on their own.

In practice the IRD works through:

• where the negotiations took place and where the contracts with supplier and customer were concluded;
• where the people making the decisions were physically located, evidenced by tickets, stamps, hotels and dated correspondence;
• where emails, calls and negotiations originated, and which numbers and addresses were used;
• where performance happened: warehousing, shipping, logistics, transport and customs documents;
• whether the company has an office, staff or a resident director in Hong Kong, and whether any customers or suppliers were Hong Kong based.

Working presumption: where a contract is negotiated or signed in Hong Kong, the IRD starts from the position that the profits are fully taxable. Partial apportionment exists in some business models but is never granted by default and has to be argued element by element.

The uncomfortable part: the less the profit is taxed anywhere else, the less willing the IRD is to confirm offshore status. If your model means the income is taxed neither in Hong Kong nor in the country of actual management, expect a fight. Real tax residence and tax paid elsewhere help the claim, and create obligations in that other country.

A claim confirmed once does not last forever. In substance it is revisited each year, and any change in business model, sales channels or counterparties resets the analysis. For a specific model you can apply for an advance ruling from the IRD on the source of profits: the service carries a fee, confirmed at the time of application, but it locks in the department's position in advance and removes a large part of the uncertainty.

Passive income is treated separately. A foreign-sourced income exemption regime has applied since 1 January 2023 and was widened from 1 January 2024. It covers members of multinational groups and catches dividends, interest, intellectual property income and gains on the disposal of equity interests, and after the extension gains on other asset types as well. For those entities, foreign passive income received in Hong Kong is deemed Hong Kong sourced and taxable unless the economic substance requirement is met, participation exemption applies, or, for IP income, the nexus requirement is satisfied. A pure holding company with no people, premises or spending in Hong Kong no longer clears the bar automatically. A standalone company outside any multinational group is not within the regime.

Housekeeping matters here: source documents must be kept for at least 7 years. For an offshore claim that is not a formality, it is the evidence itself, and three years after the fact correspondence and shipping records are usually gone.

Penalties and what happens if you are late

The worst consequence of late filing is not the fine, it is the estimated assessment. If the return is not filed, the IRD can assess tax on its own estimate. That assessment has to be paid even where the real profit is lower or nil, and the only way back is an objection supported by finished audited accounts.

There is also a cost no statute mentions. Hong Kong and foreign banks request current audited accounts at periodic client review. Missing accounts for the last year, or a qualified opinion, is a standard trigger for restricting or closing an account, and a closed Hong Kong account is practically impossible to reopen.

On closing a company: walking away and simply not paying does not work. Voluntary deregistration starts with a notice of no objection from the IRD (applied for with a HK$270 fee), followed within three months by an application to the Companies Registry with a HK$420 fee. The notice will not be issued while returns are outstanding, tax is unpaid or audits are missing. So the real exit route almost always begins with bringing every missed year up to date, audit included, and only then deregistration.

What can go wrong, and who this does not suit

Audit cost is the item most often underestimated. An audit is not a fixed-fee product: the CPA prices the work. Transaction volume, number of currencies and bank accounts, related parties, inventory, loans and the quality of the source documents move the number by multiples. A company with twenty transactions and a company with two thousand pay fundamentally different fees, and that is normal.

Payment aggregators and marketplaces. Where money flows through payment providers or trading platforms, a bank statement is not enough for the auditor: transaction exports, platform reports and reconciliation of fees, refunds and FX differences are needed. This is the single biggest source of overruns, and the export formats are worth agreeing in advance.

Unsupported expenses. Cash, payments from the owner's personal card, transfers to friendly parties with no contract or deliverable - the auditor will either refuse to recognise the expense or reflect the issue in the report. Both cost money: more taxable profit in the first case, a damaged document that banks read in the second.

Intra-group transactions without paperwork. Loans to members, royalties, management fees from a related company with no agreement and no pricing rationale are a risk zone both for the audit and for an IRD review. Reconstructing them after the fact is more expensive and less convincing than documenting them upfront.

A promise of zero tax at incorporation. If a provider guarantees the foreign-profits exemption before analysing how the business actually operates, that is marketing. The exemption is evidenced year by year; it does not come attached to the certificate of incorporation.

Accumulated missed years. Restoring three years of bookkeeping and audit costs materially more than running one. Until every year is closed, the company cannot be sold, cannot be cleanly wound up, and cannot be defended at a bank.

Who this does not suit:

• Anyone not prepared to pay for an audit annually regardless of turnover. The cost of keeping a Hong Kong company alive is never zero.
• Anyone without the habit of keeping source documents and correspondence. A model where everything is justified after the fact collapses at the first IRD query.
• Anyone who just wants a dormant shell for the future. Closing the company properly and incorporating again later is usually cheaper than years of maintenance and audits.
• Multinational groups that set up in Hong Kong for untaxed dividends and interest with no local presence: under the foreign-sourced income regime, the benefit disappears without economic substance.
• Anyone genuinely running the business from their own country of tax residence. Hong Kong settles the Hong Kong tax question; it does not settle permanent establishment, corporate tax residence by place of management, or controlled foreign company rules where you live. That is a separate analysis and it should come first.

Fees

How the work runs: you send us bank statements and source documents, we keep the records, prepare the financial statements and the tax computation, hand the file to a practising auditor, clear their queries, file the return with the IRD and handle the follow-up correspondence if any arises. The audit opinion is issued by an independent Hong Kong firm.

Prices are indicative and cover our work on a typical case. We confirm the exact quote in writing after a short call - you know the final number before we start. Government fees, the audit firm's fee and bank tariffs are billed separately unless explicitly included.

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