Mr. Zhao from Hangzhou registered a Hong Kong company in 2024 to handle cross-border payments. He had always assumed that since ”the company wasn’t conducting business in Hong Kong and its profits were generated overseas,” he wasn’t required to file audit reports or tax returns. That was until last month, when he received a penalty notice from the tax authority: a minimum fine of 1,200 HKD for failing to submit the audit report on time, along with a requirement to file audit reports for previous years.

Mr. Zhao’s reaction was typical: ”I thought it didn’t need to be reviewed.” He’s not alone in this—in 2026, the Hong Kong Inland Revenue Department specifically issued a “Guide to Common Misconceptions About Corporate Tax Filing” to correct these long-standing misconceptions.

01

Misconception 1: Zero-reporting returns do not require an audit

This is the most common misconception—and the most costly one. Many Hong Kong business owners believe that if their company isn’t making a profit or generating revenue, they can simply file a zero-revenue tax return and don’t need to hire an accountant to conduct an audit.

The rules for 2026 are as follows:Only entities that have been granted inactive company status are exempt from the audit requirement.What is an inactive company? You must formally submit an application to the Companies Registry and, upon approval, obtain a certificate of inactivity. It’s not enough to simply assume the company is ”not operating”—you must follow the proper procedures.

Companies that have not been granted active status must submit an audit report even if they have zero revenue and zero cash flow for the entire year. Simply filing a zero-income tax return without attaching an audit report will be deemed a false declaration by the tax authorities, resulting in a maximum fine of 50,000 HKD plus a penalty equal to three times the tax owed. Companies that file zero-income tax returns for three consecutive years are highly likely to be subject to a tax audit.

02

Misconception 2: If you don’t operate in Hong Kong, you don’t need to undergo an audit

Many people involved in cross-border e-commerce and international trade register Hong Kong companies solely for the purpose of receiving payments and routing funds, while their actual business operations take place entirely on the mainland or overseas. They reason: ”My business isn’t in Hong Kong, and my profits aren’t generated there—so why should I be subject to an audit?”

However, the rules under Chapter 622 of the Hong Kong Companies Ordinance are very clear:The criterion for determining audit obligations is the company’s place of registration, not the location where business activities take place.Any limited liability company incorporated in Hong Kong must undergo an annual audit, regardless of where its business operations take place.

The only exception is the offshore exemption—if a company’s profits are indeed derived entirely from outside Hong Kong, it may apply for an exemption from profits tax. However, to apply for the offshore exemption, you must have completed an audit for the corresponding fiscal year, and the audit report must explicitly state that the source of the profits is outside Hong Kong. If you apply for the offshore exemption before the audit is completed, the Inland Revenue Department will reject the application outright.

03

Misconception 3: Mainland Accountants Can Do It Too

The third misconception is particularly misleading. Some Hong Kong companies hire mainland accounting firms to conduct audits, thinking, ”They’re all accountants—what’s the difference?”

There is a significant difference. Section 405 of Chapter 622 of the Companies Ordinance clearly stipulates:Only audit reports issued by individuals who hold a Certified Public Accountant (CPA) qualification issued by the Hong Kong Institute of Certified Public Accountants have legal validity.Reports issued by mainland-registered certified public accountants—and even partners of the Big Four international firms based in mainland China—are all invalid if they do not hold a Hong Kong practice license.

The tax authority considers companies that submit invalid audit reports to have ”failed to file their returns,” and will impose the corresponding penalties. Furthermore, you’ll have to bear the costs associated with the delay caused by the invalid report—once the issue is discovered, you’ll need to hire a licensed Hong Kong accountant to redo the work, which will incur additional expenses.

There is another new regulation for 2026 that is often overlooked: Companies in non-exempt industries with annual revenue exceeding 1 million HKD are required to upload a core summary of their audit report to the Companies Registry’s public search system. If they fail to do so, the Registrar of Companies may impose a fine of up to 20,000 HKD on the directors.

As for audit fees, in 2026, companies with no operations will pay approximately 2,000 to 4,500 HKD, while those with annual revenue under 5 million will pay approximately 3,000 to 8,000 HKD. This is an expense that cannot—and should not—be cut.

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