In a recent circular to tax representatives (the circular) by the Hong Kong Inland Revenue Department (the IRD), it was underlined that the IRD no longer exempts the submission requirements of supporting documents from the year of assessment 2022/23, except for dormant companies or overseas companies which are not required to carry out statutory audit in the respective jurisdiction.
Submission of Profit Tax Returns (PTR) and provision of supporting documents
Paragraph 25e of the circular highlights that irrespective of the amount of their gross income, all corporations and businesses, except in those cases mentioned below, are required to furnish their PTR together with all the supporting documents including: (1) a certified copy of Statement of Financial Position / Balance Sheet and Statement of Comprehensive Income / Profit and Loss Account in respect of the basis period; (2) a tax computation with supporting schedules showing how the amount of Assessable Profits (or Adjusted Loss) has been arrived at; and (3) other documents and information as specified in the ‘Notes to the Profits Tax return’.
It should be noted that, other than under the exceptions below, small corporations and businesses with gross income not exceeding HKD2,000,000 will no longer enjoy the exemption from furnishing supporting documents when filing their PTRs with effect from 1 April 2023. Subsequently, Hong Kong companies filing a nil return are also required to submit an audit report for the year of assessment 2022/23.
Audited Financial Statements for Incorporated Businesses Exceptions
For Hong Kong companies, audited financial statements should be submitted with the PTRs in all cases except:
(a) dormant companies (within the terms of the Companies Ordinance (Cap. 622)), or
(b) companies incorporated in a jurisdiction whose laws do not require financial statements to be audited and an auditor’s report has not been prepared. For these cases, the financial statements should be accompanied by a certificate from the Hong Kong tax representative.
Note on Hong Kong branch of a foreign company (Part 16) Financial Statements
The IRD is generally prepared to accept unaudited branch financial statements without the cover of audited world-wide financial statements provided that, as a minimum requirement, the following information is supplied by the tax representative with the PTR:
(a) the place of incorporation of the foreign company
(b) whether the laws of that country require a statutory audit of the world-wide financial statements of the company
(c) whether an audit has been conducted, and
(d) a brief summary of the financial and accounting records maintained by the branch in Hong Kong.
In exceptional cases where, following the submission of the PTR, the IRD considers that a copy of the audited world-wide financial statements is required, a request for its submission will be made.
Next steps
Should your Hong Kong company have no business activities and you are preparing a nil return for 2022/23 then it is now mandatory for your HK Company’s accounts to be audited. Active small HK Companies that have previously not been required to submit an audit report must now also make arrangements to have their financial statements audited for submission with their PTR.
Marbury’s bookkeeping and accounting team can assist with the audit management as well as the audit (through our affiliated entities). Please get in touch with your usual advisor, or contact info@marburys.com for more information.
“My Hong Kong company has no transactions”
For clients whose Hong Kong company is not currently active, you may consider declaring the company dormant which would remove the requirement to file an annual return, as well as reduce further company-related costs. For information on how to claim dormancy, or to discuss other options for your Hong Kong company, please contact your usual advisor or info@marburys.com.