After registering a Hong Kong company, many bosses think that "everything will be fine if they get the license", not knowing that the follow-up maintenance is the key to determine whether the company can operate for a long time. Some people ignore the audit process by the Inland Revenue Department fined hundreds of thousands of dollars, some people due to non-compliance with the accounts missed large subsidies, and some people because of the wrong auditing organization led to account freezing ......

Combined with the requirements of the Hong Kong Companies Ordinance and practical experience, this article will focus on the core of the audit to help you figure out the logic of compliance and avoid high-frequency traps!

Statutory red lines: audits are the "first line of defense" that must be observed after the note is issued.

Many bosses have cognitive blindness to the Hong Kong company audit, and even think that "no business, no need to do", but according to the Hong Kong Companies Ordinance and the 2023 update of the tax policy, the audit is an unavoidable statutory requirements, these points must be engraved in the heart:

1,Timing Node:

First audit in 18 months, must be done every year without delays

For newly established Hong Kong companies, the first audit must be completed in the 18th month from the date of registration; thereafter, an annual audit must be conducted on the financial year-end date every year. For example, if the annual closing date is set as December 31, the audit must be completed and declared before March 31 of the following year; if the annual closing date is set as March 31, the declaration needs to be completed before June 30 of the following year, and a high penalty will be incurred for late filing, and it will also be included in the "Key Verification List" by the Inland Revenue Department;

Here's a special reminder:Even if the company has not conducted any business or opened any bank account after registration, as long as the company has not applied for "dormant status" or "exemption from audit", it is necessary to commission a licensed accountant in Hong Kong to issue a "no-operations audit report "It cannot be skipped directly.

2,Corequisite:

Bookkeeping + vouchers, can't do an audit without one of them

Audits are not "reports out of thin air" and must be based onBased on standardized bookkeeping and complete documentation. Whether it is the cross-border e-commerce company's platform sales records and logistics documents, or a trading company's foreign exchange flow, purchase and sales contracts, or even employee payrolls and MPF payment records, all of them should beFile and retain one by one.;

These vouchers are not only the core basis for bookkeeping, but also the key to proving the authenticity of the accounts in an audit.

3,Qualification Requirements:

Must find a licensed organization, no qualification is equal to nothing

The validity of the audit report depends entirely on theQualifications of the issuing organizationAccording to the regulations, only accountants licensed as Hong Kong Certified Public Accountants (HKICPA) and firms on the Inland Revenue Department's List of Approved Auditors can issue audit reports. According to the regulations, only accountants holding a Hong Kong Institute of Certified Public Accountants (HKICPA) license and firms on the Inland Revenue Department's "List of Approved Auditors" are allowed to issue audit reports that are recognized by the Inland Revenue Department, banks, and investors;

Some of the "low-cost audit" organizations on the market are not qualified at all, the report issued not only can not be used for tax returns, but also be judged by the bank as "false material", directly frozen company accounts, the subsequent unfreezing process is extremely complex.

Avoid the pit focus: audit 5 major misunderstandings, 90% bosses have stepped on the

In audit compliance, many bosses step into the trap due to poor information, of which these five misunderstandings are the most typical, combined with case-by-case dismantling to help you accurately avoid:

Zero declaration =Save time and effort by not having to audit?

✖ Misoperation: think "No income, no water."Just go ahead and file zero and skip the audit.

✔ Compliance Requirement: After April 2023, Hong Kong has completely abolished "no audited zero return";
There are six stringent conditions that must be met at the same time for a zero filing, and you can't have one without the other:

• No bank account has been opened;
• No transactions with Hong Kong clients;
• No hired employees;
• No leased office space;
• No Hong Kong trademarks/patents used;
• No record of Hong Kong-sourced profits and imports/exports.

If you have not been audited for years, is it enough to make up for the current year?

✖ Wrong operation: the company was registered for three years without auditing, to apply for financing to make up for the current year's report, that "past is not to blame".

✔ Compliance requirements: The Inland Revenue Department of Hong Kong has7-year retroactive rights, regardless of whether the company is actually operating or not, it is required to make up all the audit reports since its inception without any breaks.

It doesn't matter what's in the audit report, just that it's there?

✖ Misuse: Finding a random organization to issue a report, not caring about the "audit opinion", or even agreeing to falsify the data.

✔ Compliance requirements: the core of the audit report is the "audit opinion", which is categorized as follows.unqualified opinion(optimal, proving that the accounts are true and fair),reservation(Localized data are questionable),negative opinion(statements grossly misrepresented) in three categories. Only unqualified reports can be used for financing, subsidy applications, and annual bank audits.

Is it more cost effective to have different organizations for bookkeeping and auditing?

✖ Wrong operation: In order to save a small amount of money, find organization A to adjust the accounts and organization B to audit, thinking that "each division is more professional".

✔ Practical advice: not recommended! If A organization does not organize the data according to the audit standard (such as omission of vouchers for related transactions), B organization will need to reorganize the accounts after taking over the work, but spend more 30% time and cost. The same organization will directly match the auditing requirements and enjoy discounts when auditing, which is more efficient.

Audit done and over with, don't worry about tax returns?

✖ Misconduct: Getting an audit report and putting it on hold, forgetting to file a tax return, thinking that "if the audit is done, you're in compliance."

✔ Compliance Requirement: Audit is only a prerequisite, the Profits Tax Return (BIR51) must be completed within the stipulated time and submitted to the Inland Revenue Department (IRD) together with the audit report and the calculation sheet. Penalty for late filing starts from HK$2,000 for the first filing, and repeated late filing will be prosecuted to the court.

Practice the whole process: from the preparation of information to the declaration, four steps to deal with the audit

Many bosses feel that the audit process is complex, in fact, as long as the step-by-step progress, with professional organizations can be efficiently completed, the core is divided into four steps:

Step 1: Prepare all information in advance to avoid delays

1. Certificate of Incorporation, Business Registration Certificate, Bylaws;
2. Prior year audit report;
3. All monthly bank statements (including unused accounts);
4. Purchase and sales contracts, invoices, logistics documents, customs declarations;
5. Employee payroll, MPF records.

It is recommended that this be filed on a quarterly basis to avoid missing it at the end of the year when the search for information is centralized.

Step 2: Accurate screening of audit firms

1. inspect a qualification: HKICPA license number is required and can be verified on the official website of the Hong Kong Institute of Certified Public Accountants (HKICPA);
2. from experience: Priority is given to those with service cases in the same industry, such as cross-border e-commerce and foreign trade companies, which know more about the industry credentialing requirements;
3. sign an agreement:: Clarify the costs, timelines, and division of responsibilities, and reject "low-cost packages" and "verbal promises".

Step 3: Cooperate with audit verification and timely communication

The auditor will randomly check the vouchers and water flow, encounter unusual transactions (such as large amount of public-to-private, related party payments) to prepare materials in advance; at the same time, we should take the initiative to inform the business model, for example, "the goods are sent directly from the mainland to overseas, without passing through Hong Kong", to facilitate the auditor to sort out the chain of evidence of the exemption of offshore. Accounts found to be problematic should be adjusted in a timely manner, signing the audit adjusting entry form to confirm the data.

Step 4: Submit on time and close the loop

After getting the audit report, you should first check 3 points: whether it is an unqualified opinion, whether the signature and license number of the licensed accountant are complete, and whether the data is consistent with your own accounts. After confirming that there are no errors, fill in the tax form, which can be submitted online through the "e-Filing Service" of the Inland Revenue Department or entrusted to a secretarial company to ensure that it is completed before the deadline.

Long-term maintenance: 3 key habits to ensure compliance

1. building a system: Immediately after the establishment of the new company, we built a financial system, clarified the person responsible for filing bills and recording accounts, and used financial software such as QuickBooks to automatically record income and expenses to reduce manual errors;
2. solicit solicitations: Communicate with the auditor on a quarterly basis and plan tax nodes in advance, such as the timing of offshore exemption applications and the accounting requirements for subsidy filings;
3. depository receipt: All electronic vouchers (e.g. platform water flow) are backed up in the cloud, and paper vouchers are scanned and archived to avoid being lost and not being able to be replaced.

The core of Hong Kong company maintenance has always been "compliance first". Audit is not only a statutory requirement, but also a "passport" to apply for BUD subsidies, offshore exemptions and financing cooperation. Only by doing a solid audit process and keeping the documents in place can we truly utilize the advantages of a Hong Kong company!