What You Need To Know About HK Annual Returns
You will know the annual filing obligations on every Hong Kong Private Company Limited by Shares (commonly referred to as Limited Company).
Every owners have obligation to comply with these
Filing your annual returns before due date
Annual filing (also known as “Annual Return” in view of respective government authorities) is an annual statutory requirement for all the registered business entities to renew and maintain its legal statue to continuously operate (i.e. doing business) for a period. For a Hong Kong Private Company Limited by Share (Limited Company) including the Limited Company in both active and dormant statue, the most popular business entities in Hong Kong, every members of a Limited Company are legally required to deliver the completed annual return back to the Companies Registry and Inland Revenue Department which are the government authorities for incorporation and taxation before prescribed deadline.
Rule 1: Keeping material of company’s transaction and preparing for financial statements
Making profit for the investors is the reason of existence for any business entities, a company must take par in accounting transactions which are to be book in company’s accounting record but excluding the government required fee with its clients, suppliers and employees. Business owner are required to prepare your company for an annual financial statements in accordance with the Financial Reporting Standards of Hong Kong with respect to the volume and frequency of your company’s financial activities during latest accounting year.
We advise that you perform monthly bookkeeping to keep your ledgers in order when your company has frequently (e.g. over 10) accounting transactions per month. However, the number of monthly financial transactions is relatively small i.e. less than 10, you can perform bookkeeping on a quarterly or annual basis.
The financial statements should consist the following:
- Statement of Comprehensive Income (i.e. Profit and Loss Account)
- Statement of Financial Position (i.e. Balance Sheet)
- Cash Flow Statement
- Statement of Changes in Equity
Your “Dormant company” is still required to prepare for the financial statements recording up to the effective date of its dormancy. The Dormant Company is still required to complete and deliver the annual return and pay the government fee for legal statue renewal.
Rule 2: Audited Financial Statement of company’s previous accounting year
Statutory reporting are required annually for every Limited Companies, including 3 document : a balance sheet, profit and loss account (P&L), and a cash flow statement. The reports must contain audited financial statements for the current year, with corresponding amounts for the preceding year.
What is audited financial statements?
Generally, it is the financial statement being signed off by a Certified Public Accountant (CPA) who works as an auditor on this. The use of audited financial statements are common in provision of financial accountability of a incorporated body to investors, board members, and constituents, this is simply the accounting documents that are prepared by a Certified Public Accountant on behalf of a business entity as well as non-profit organization.
Before a CPA sign off a set of financial statements of an organization, the source material to composed the statements are always possessed and provided by this organization, these includes a wide range of financial documents for example Accounts Payable and Receivable information, expense reports, budgets, and any supporting document to a financial record. The organization’s accountant takes prepare various financial statements and let CPA to evaluate and cross-reference them with supporting document.
Therefore, the audited financial statements provide a professionally verified viewpoint on the financial situation of the organization and can be present to interested parties.
Unqualified Opinion by CPA
Essentially, the audited financial statements include a section that is referred to as CPA’s opinion, which is the responsibility of the CPA to give either an “Unqualified Opinion” or a “Qualified Opinion”.
An unqualified opinion states that after the CPA review the financial documents, CPA is in agreement with the methods used to prepare those documents, the audit is accurate and complete in accordance with Hong Kong financial reporting framework. However, unqualified opinion does not mean the organization is clear because CPA is able to provide reasonable assurance regarding the financial statements, not the health of the organization itself, or the integrity of company records not part of the foundation of the financial statements.
Qualified Opinion by CPA
When the CPA is NOT in agreement with the methods used to prepare the supporting financial documents, not necessarily mean the CPA thinks misleading document.
However, it may mean the CPA found misstated instances where expenses should have been assigned to a different category and errors in line items. This states that the financial statements are fairly presented with a certain exception which is otherwise misstated and does not comply with generally accepted accounting principles.
Rule 3: Annual General Meeting (AGM)
An annual general meeting (commonly abbreviated as AGM, also known as the annual meeting) is a meeting that official bodies, and associations involving the general public (including companies with shareholders), are often required by law (or the constitution, charter, by-laws etc. governing the body) to hold.
Annual General Meeting (AGM) is no longer compulsory. All business can dispense AGMs if certain requirements are met for advanced companies’ flexibility plus cost saving, here are the criteria for giving up AGMs:
- With the utilization of written resolution (WR) for decision making and copies of related documents are provided to shareholders by the specific circulation date; OR
- The incorporated body is a single member company (i.e. the only director is also the only shareholder); OR
- A resolution about “no AGM is needed” is passed by all members of incorporation, given that such resolution is not revoked and none of the member has proposed for holding an AGM;
Rule 4: Filing of Annual Return with Companies Registry (CR)
Each Hong Kong company must lodge an Annual Return (AR) with CR within 1 month. Particulars of the company member, registered address, and auditors (if applicable) must be included in the AR. The attachment of company’s accounts is governed by the applicable rules here.
Rule 5: Filing of Annual Tax Return with Inland Revenue Department (IRD)
Each Hong Kong company must file its annual tax return with IRD. Hong Kong adopts year-by-year basis for taxation. The profits for the financial year ending in the preceding year will NOT form the basis for filing the tax return in the current year.
Note that the directors the company are responsible and accountable for complying with the annual filing requirements. Failure to comply with the statutory compliance requirements is an offence and may result in fines or prosecution.