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Tel：+86 400 118 5939Hong Kong has always attracted many mainland enterprises to establish companies in Hong Kong due to its advantages of simple tax categories and low tax rates. Especially after registering a Hong Kong company, one can apply for a Hong Kong bank account without foreign exchange controls, and it can also be operated online, which is convenient and fast. Although the business environment in Hong Kong is relatively relaxed, it does not mean that commercial companies are allowed to develop freely without any restrictions. In fact, Hong Kong has extremely strict management of its subsidiaries, especially in terms of tax requirements for commercial companies, which require Hong Kong limited companies to conduct audits and tax reporting every year. Next, let's take a look at the necessity of annual audits for Hong Kong companies.
According to Section 622, Chapter 429 of the Hong Kong Companies Ordinance, all limited companies registered in Hong Kong are required to entrust an accounting firm to audit their annual financial statements, in order for the company's shareholders to understand the company's financial situation. After 18 months of establishment, the first tax return for a new company is generally set on March 31st, December 31st, or other accounting years in the Hong Kong audit report. In the future, according to the company's accounting year, tax reporting will be done once a year. If the accounting audit is not conducted on time, once discovered by the tax bureau, on the one hand, fines will be imposed, and on the other hand, the company will be required to make up for the previous tax returns. Otherwise, the company will be forcibly deregistered, and directors will be blacklisted from entering Hong Kong, which will have a negative impact on the company's and individual reputation. Serious cases will also receive a court summons, requiring them to appear in court to explain, and the maximum penalty for tax evasion liability is imprisonment.
In addition, the Inland Revenue Department will also require Hong Kong companies to submit their profits tax return BIR51 with audited financial statements for the purpose of tax assessment procedures. Therefore, it is necessary to undergo an audit before filing taxes.
In addition to the mandatory legal requirements mentioned above, auditing Hong Kong companies is also beneficial for their compliance development. The investors of a limited company are shareholders, while the managers are directors. Shareholders, considering their own interests, inevitably want to understand the company's operating conditions. However, the company cannot disclose important and sensitive financial data of internal operations without restrictions, or allow shareholders to review the company's detailed accounts. Therefore, the company needs an independent third-party professional to audit the company's accounts, ensure that the financial reports submitted to shareholders are true, reliable, and free of significant misstatements, so that shareholders can understand the company's operating conditions, and establish a balance between confidentiality of company data and monitoring of director performance.
Many mainland enterprises, after registering a Hong Kong company, ignore it for various reasons such as company unwillingness or to save maintenance costs, and do not conduct annual audits or deregistration. Little did they know that Hong Kong companies not undergoing annual audits not only incur fines, but may also face many troubles such as business and account opening obstacles!
So, in order for the company to operate in the long term and have better development, annual accounting audits are essential! At the same time, attention should be paid to the timing of accounting audits.
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