Everything You Need To Know About Hong Kong Accounting and Bookkeeping

Establishing a business presence in Hong Kong presents a multitude of advantages conducive to business growth. The city’s business-friendly environment, coupled with its strategic geographical location and vibrant market, make it an optimal choice for commencing or expanding your business ventures.

However, amidst the various appealing aspects of operating in Hong Kong, the financial accounting dimension often remains overlooked by business professionals and entrepreneurs due to its perceived complexity. Despite this perception, Hong Kong’s accounting system is straightforward, facilitating easy and efficient reporting of financial records to the appropriate authorities.

In this discussion, we will underscore a crucial aspect outlined in the Hong Kong Companies Ordinance. It mandates that all companies operating within Hong Kong are obligated to annually prepare their accounting records. Before delving deeper into this requirement, let’s begin with a brief overview of the accounting framework in Hong Kong.

What accounting system does Hong Kong follow?

Despite being a part of Mainland China, Hong Kong operates under distinct accounting and tax systems. As highlighted earlier, outlined in the Companies Ordinance, the legislation governing obligations for Hong Kong-registered companies mandates the maintenance of transaction records and the preparation of a statutory audit report by a Certified Public Accountant (CPA).

The oversight and updating of Financial Reporting Standards (FRS) in line with international norms are overseen by the Hong Kong Institute of Certified Public Accountants (HKICPA). A pivotal shift in these standards occurred in 2005 when the framework transitioned to the International Financial Reporting Standards (IFRS).

For a newly registered Hong Kong company, the first profit tax return is due 18 months from the date of incorporation. This initial declaration covers 18 months of operation, deviating from the subsequent fiscal years, which consist of 12 months of operation. Typically, the year-end date is determined by the company’s directors before the incorporation phase. If you’re yet to register a company in Hong Kong, our Hong Kong company registration service is at your disposal to facilitate the process.

With the fundamental aspects of accounting standards and regulations in Hong Kong covered, let’s delve into the subsequent section to grasp the essence of accounting records and audits.

What are the Accounting records?

During a financial year, the accounting records and transactions of a company must be in line with the Hong Kong accounting standard. Let’s explore this point in more detail.

As previously highlighted, a Hong Kong-based company is required by law to maintain comprehensive transaction records involving purchases, sales, expenditures, employee and director salaries, and profits. The meticulous organization of these records holds significant sway over a company’s overall performance, making it a pivotal factor in determining success or failure. These transaction records are summarized in a crucial document known as the Financial Statement.

What to Include in Your Financial Statements?

The culmination of a company’s financial records results in the creation of the Financial Statement report. This comprehensive report serves as a valuable tool for assessing a company’s financial position within a specific period. It encompasses three vital components: the Balance Sheet, the Income Statement, and the Statement of Cash Flow. These components collectively provide insights into the company’s assets, losses, profitability, expenses, and cash flow dynamics.

For those embarking on a business venture, acquiring a foundational understanding of accounting principles is strongly recommended. This knowledge proves instrumental in maintaining robust record-keeping from the outset, especially as the business scales and operations expand. However, one may wonder: What exactly should encompass and be accounted for in these records?

1. Sales and Purchases: The company’s commercial transactions can be accurately recorded through invoices. This includes procurement of materials from suppliers or purchasing finished products for resale to end customers.
2. Expenditures: Hong Kong’s accounting practices offer flexibility in justifying business expenses, employing a system known as cost accounting. This encompasses various expenditures such as office space rent, business trips, participation fees in events or fairs, equipment purchases for employees, and machinery for business operations. Additionally, costs associated with hiring service providers like accountants, auditors, and company secretaries fall under this category. Salaries disbursed to employees and directors are considered expenses, as are director fees.
3. Business Account Statement: A monthly business account statement provides a consolidated view of all financial transactions, both inflows and outflows. This document is instrumental in reconciling a company’s income and is a crucial tool for cross-verifying financial records with accountants or accounting service providers. These statements are typically issued by banks as bank statements or by financial institutions like Iris International’s platform.

It’s essential to note that keeping accounting records at your company’s designated business address is a legal requirement. This practice, known as company record-keeping, mandates storing records for a specified period, often up to 7 years. The annual financial statements act as evidential documents that may be requested by authorities such as the Hong Kong Inland Revenue Department (IRD) to assess a company’s compliance and standing.

What accounting choices does your company have?

In this section, we will briefly outline several available alternatives for availing accounting services for your company in Hong Kong.

Accounting Software: Presently, there is a plethora of options and platforms in the market, each offering a diverse range of pricing and benefits that can cater to nearly all your business needs in Hong Kong. Some solutions even enable real-time expense tracking.

Bookkeeping and Accounting Services: A more conventional route, albeit potentially a bit costlier, is to entrust the accounting responsibilities of your company to a Hong Kong-based accounting firm. This tends to be the choice for new businesses with limited operations, helping them grasp the intricacies of recording their financial activities.

How can Iris International support?

Establishing a business in Hong Kong presents remarkable opportunities for growth, given its favorable business environment and strategic location. However, navigating the financial aspects, especially accounting and bookkeeping, can be intricate. This is where Iris International excels, offering essential support to offshore businesses incorporated in Hong Kong.

Comprehending Hong Kong’s distinct accounting and tax systems is vital, and Iris International’s expertise ensures compliance with legal requirements. We provide tailored solutions for accurate bookkeeping, enabling efficient reporting of financial records to the authorities. From recording sales, purchases, and expenditures to maintaining business account statements, we ensure meticulous organization of financial transactions, a critical factor in determining business success.

Moreover, Iris International handles administrative burdens, allowing you to focus on essential business activities. With our support, your business can thrive in Hong Kong’s vibrant market while upholding legal and ethical standards. Contact us today to streamline your business operations and ensure growth in this bustling global hub of commerce and innovation.