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Hong Kong Subsidiary  Accounting and Tax Guide



In accordance with the revised Company Ordinance Article 622 NEW COMPANIES ORDINANCE and Article 122 AUDIT ORDINANCE, all corporations in Hong Kong are required to file an annual income declaration (based on year-end settlement within 18 months for newly established companies). (Auditor), you must complete and submit a tax return based on the audit report.


The general purpose of an audit is to identify the company's business and financial status from an objective point of view, and

Shareholder,  creditor,  Not foreseeable by the parties to the transaction  Avoiding losses due to financial difficulties,  Transparent and sound financial management

This is to increase trust between the company, investors and stakeholders.  


In addition to reporting income to the tax office, the audit report must be submitted to the immigration office when a company employee applies for a visa. 

It must also be submitted when applying for a loan to the bank.  In addition, partnership commercial transactions,  supply and purchase contracts;  attract investors, etc.

It is widely used.


Accounting costs for Hong Kong companies are usually calculated by measuring the estimated time required by the average number of transactions per month or number of transactions per year.  The concept of number of transactions is usually based on the amount of revenue or expenses a company generates.

E.g  3 sales are generated  If 5 expenditures occur, the total  That's 8 transactions.  



The general details included in accounting processing are as follows.


General Ledger
Statement of Financial Position (also called Financial Position / Balance Sheet)
Income Statement (also known as Income Statement / Profit and Loss Account)


In the case of conducting an audit after the accounting book is prepared,  Due to the nature of the accounting business, the final estimate of the audit cost is obtained from the auditor after all the accounting books are prepared.  It usually costs between HK$5,000 and 10,000 for small companies,  Additional charges may be incurred depending on the time required for additional processing.


Normal when preparing accounting audits and audit reports  It takes about 1-2 months.


Preparatory documents for bookkeeping and accounting audit  


** Check data for accounting work:


1. Corporate Account Bank Statement

2. All documents related to the transaction: invoice/receipt/invoice/etc.

3. Documents related to expenses incurred in the early stage of incorporation: invoices/receipts, etc.

4. Capital payment status: Whether or not the capital established at the beginning of the establishment of the corporation has been paid (if paid, a receipt related to the payment is attached)

5. Expenditure on employee salaries and pay stubs

6. Receipts / rental agreements / other expenses related to office operation

7. Current status of borrowings from the CEO: Check whether the company has borrowed money as the CEO or the CEO has borrowed money from the company

8. Make sure you have a Petty Cash Account and attach your ledger and expense receipts if you do.



** Check the contents of the business for auditing:

9. Confirmation of business item and type of business: what goods or services the company provides, the target of the transaction,  Supplied and Supplied  Confirm
10. Check the business flow:

Where sales are generated, how costs are handled from issued sales, whether there is outsourcing in the cost processing process, what percentage of approximate sales profit or operating profit is generated compared to sales, outsourcing or outsourcing company to determine whether there is a relationship with respect to an equity or operating right with



** Check the details for tax return:

11. Check whether there is a tax avoidance area (BVI, Seychelles, Samoa, Cayman, etc.) corporation among all the companies transacted with this company
12. Check if there is an offshore income item: Check whether any business activities such as business/providing goods or services have taken place in Hong Kong, and whether the transaction with the transaction party occurred in an area unrelated to Hong Kong

About Offshore Income


The focus of transactions classified as offshore income by the Hong Kong Tax Department is based on the fact that the transaction profits are generated outside (offshore) rather than within Hong Kong.


When reporting offshore income, the Hong Kong Tax Department checks the following:


1. Location of Supplier/Costomer

2. Location of the service rendered

3. Business Cycle

4. Location of daily operation/management

5. Location of the contract made


Therefore, if the revenue generated from the transaction and all of the above items are generated outside of Hong Kong,

It is possible to proceed with tax exemption by classifying it as offshore income.


If you are proceeding with offshore income, you can estimate the following costs.


1. Accounting and auditing: 30-50% added to general expenses

2. HK$25,000 ~ 30,000 expenses incurred during the first appeal letter processing and investigation by the tax authorities

3. HK$15,000 expenses incurred when handling objections and related business from the second tax authority


**Reporting offshore income is treated as non-taxable, but documents are complicated and due diligence by the tax authorities is required.

  The time required to respond to an investigation results in associated costs.



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