You had your HK company set up in a matter of days, opened a bank account, and for the next 18 months, you focused on growing your business, undisturbed. Then the Inland Revenue Department (IRD) showed up and requested you submit a Profits Tax Return. It’s time to talk to a CPA and have your company accounts audited. There’s no need to panic. The first thing to do is identify a registered and licensed service provider that can help you navigate the challenges. Here are five tips that will help ease the burden and make sense of the ordeal:
1. You are not alone; everyone must pass the test
Despite the ease of doing business, low tax regime, and low barrier for entry, you’d be ill-advised to think that HK authorities won’t keep a tight control of your business. Every company incorporated in HK will need to pass an annual audit once it’s commenced operating. The audit must be done by an HK Certified Public Accountant (CPA), and submitted to the IRD, along with the Profit Tax Return. There are no exceptions based on size or revenue of the company.
2. Small things may make a big difference
If you’re not versed in HK accounting standards and are not careful, your first audit may prove more troublesome than anticipated. Your auditor may uncover issues that will delay the completion of the audit, or worse, that will lead him to issue a qualified opinion on the audit report. Both are completely preventable, even if you prepare the financial statements in house. Having an HK accountant review them will help you ensure no major issues arise during audit.
3. Paper is still king
With the right software and an image scanner, bookkeeping has never been easier. Your business has gone paperless and a heavy load is off your shoulders. We’re in the 21st century who needs paper? Well, your HK auditor does, for one. The original hard copies of your expense receipts are required by most auditors in order to obtain sufficient appropriate audit evidence, so make sure you save them.
4. Do your homework early and stay ahead of the crowd
HK has thousands of companies and, as mentioned, all of them will need a CPA to prepare an audit report. This, coupled with the limited number of CPAs in the city, means that auditors are extremely busy during tax season. Preparing your financial statements well in advance of the tax deadline will allow your auditor to schedule your audit before most everyone else’s.
5. It’s for the greater good
Finally, it’s important to understand the rationale behind the audit requirements in HK. You can think about it as a necessary trade off: Hong Kong offers unparalleled ease of doing business, and it’s essential that all appropriate measures be taken in order to maintain order and protect the legitimacy of the system. Tighter financial reporting requirements offer investors and institutions the solid foundation required to sustain Hong Kong’s reputation as one of the most efficient and successful business hubs in the world.
CSC is one of the world’s largest privately held businesses to offer corporate administration and international expansion services. Within the APAC region, we’ve been serving clients with a full suite of tax and accounting solutions for more than 40 years–including management accounting and bookkeeping, tax compliance, cost and expense management, cash management and payment processing, and more.