Hong Kong End-of-Year Financial Reporting
In this article, we discuss what you need to know about Hong Kong's end-of-year financial reporting in Hong Kong. We will cover what it is, why it is important, and how to prepare for it.
What is the financial year in Hong Kong?
The financial year is a 12-month period used to prepare company financial statements, among other accounting purposes. In Hong Kong, the end of this period is known as the Financial Year End, or FY end. You might also see this term referred to in Hong Kong as the ‘Fiscal Year’ or ‘FYE’, while in other countries, you might speak about the ‘Accounting Year’.
The first financial year (FY) after incorporation can span up to 18 months, while subsequently, it will be 12 months.
What needs to be reported in Hong Kong's financial year-end statements?
The standards for financial annual reporting in Hong Kong are set by the Hong Kong Certified Institute for Certified Public Accountants (HKICPA).
All companies are required to prepare statements for audit before filing a profits tax return.
The annual financial statements include the Balance Sheet, Profit and Loss, and other reports as applicable.
Selecting your Financial Year Dates in Hong Kong
In Hong Kong, the financial year defaults to the end of the month of the incorporation anniversary unless the company actively chooses the FY end (for example, if the entity was incorporated on 15 Jan 2021, the first FY end defaults to 31 Jan 2022). Usually, companies in Hong Kong will actively choose the FY end.
Common Options for Financial Year Ends for Hong Kong Companies
There are common financial year dates that companies gravitate towards. Many companies in Hong Kong choose 31 December as the end of the calendar year, or 31 March to coincide with the end of the Hong Kong Government financial year.
It’s important to note that companies are free to choose any date. Evaluating options for an FY could save time and bring efficiencies in years to come.
How to choose your Hong Kong Financial Year End
Consolidation of multiple entities
Where a subsidiary or group is involved, it may be best to consider matching their FY end dates to avoid additional cost and time effort for the consolidation. This is because Hong Kong companies that hold subsidiaries are required to prepare consolidated financial statements. At the same time, where the Hong Kong Company is a subsidiary of another company, that other company may be required to prepare consolidated financial statements.
Tax
The first financial year could be up to 18 months after incorporation, but subsequent tax returns have to be filed around the same time every year. It’s possible to maximize the time for filing by choosing a year-end between 30 April and 30 September.
Avoiding dates when service providers are busy
Given that the majority of companies set their FY end to 31 December, auditors and accountants are very busy during January. Choosing another time of year outside of their ‘peak season’ could bring an opportunity for a discount on their services.
Avoid busy periods for staff and management
Take note of seasonality in your business. If there are peaks or troughs in activity, there may be obvious times to choose, or steer clear of or opportunities for maximizing staff capacity.
How to inform the Hong Kong Government of the Financial Year
For recently incorporated companies, the process is simple and part of the first profits tax return.
Report the FY end date in the profits tax return form, which is sent to the company’s registered address within 18 months after the company’s incorporation. You must submit the first tax return within three months of receiving it.
How do I change my Financial Year in Hong Kong?
Has the business changed, or are there additional factors to consider? It’s not too late to change the FY end date, taking some limitations into account.
Before changing the Financial Year end of a company, ensure:
The FY end date must not be more than 18 months after the date of the change
Shareholder approval may be obtained prior to the change, for example, where the FY end has already been changed
Public companies and private companies limited by guarantee are required to report changes to the Companies Registry within 15 day
How to prepare for the Financial Year end
The best way to avoid any surprises is to be aware of what is required from the start. Here is your year-end accounting checklist on how to close the fiscal year.
Know your dates. Choose the company FY end at the time of incorporation. There is no legal requirement to do so, but it helps to be intentional and avoid missing deadlines later on. Set reminders for all other key dates, such as tax filing and annual returns.
Review accounts regularly. Check-in monthly to keep all accounting information recorded as it happens to avoid rushing or missing details at the year’s end.
Be aware of all the financial reporting standards for all jurisdictions where a company operates. For example, Hong Kong-Financial Reporting Standards (HK-FRS) largely follow International Financial Reporting Standards (IFRS) with some modifications, while there is a major difference with US GAAP. Working with an accountant locally (such as Shepherd Asia) assists to prepare monthly statements, alongside your finance team.
Appoint an auditor before your first FY end.
Your auditor will guide you on complex accounting issues, avoiding issues like audit adjustments and qualifications on the auditor later on. For some types of businesses, a qualification on the audit opinion is inevitable if the auditor is not appointed until after FY end. For example, companies carrying inventory will need an auditor to do a stock take on the financial year-end date. If this does not happen, the audit report will be qualified. (to manage this process or any issues related to an audit, companies can contact Shepherd Asia. Please note that we are not auditors, but we liaise with auditors on our clients’ behalf.
The Final Word on FYE in Hong Kong
All businesses are required to report on their financial position at the end of their financial year. You can choose this date to suit the business operations and (potentially) save money, or the date will default to the end of the month in which the company was incorporated. If the date needs to be changed, it is okay to do so, with a few considerations. It is essential to know your company requirements, including your FY end and reporting standards, as well as staying up to date on your accounts.
More information, forms, and policies are available through The Hong Kong Companies Ordinance and Accounting Standards.
