End Of Year Financial Reporting in Hong Kong: All You Need to Know
An end-of-year financial report is an essential document summarising a company's financial standing. All limited companies registered in Hong Kong are legally required to audit their financial year-end reports, and most are required to submit them to the Inland Revenue Department (IRD).
This article will explain everything you need to know about choosing and preparing for a financial year-end for your company.
When Is the Financial Year-End in Hong Kong?
The financial year ends on 31 March for the Hong Kong Government, and the new financial year starts on 1 April. However, companies do not have to follow the government's financial year. Instead, they can choose when it begins and ends for themselves, and most companies exercise this option as it can have benefits.
Unless the company chooses a financial year-end, it defaults to the end of the month of its incorporation anniversary. For example, a company that was incorporated on 15 January 2022 will have its financial year-end on 31 January 2023.
How to Choose the Financial Year-End for Your Business
Consider choosing your company's financial year-end when you incorporate the company. The default date is your incorporation anniversary, but choosing your own financial year-end has the following benefits:
Better alignment with the cycle of your business operations.
Strategic tax planning and cash flow management.
Easier comparison and benchmarking with industry standards.
Streamlined audit process.
Your first financial year-end can be up to 18 months after the incorporation date. Subsequent financial years generally last 12 months. Since the year-end also affects the deadline of the company's Profits Tax Return (PTR), you can use this to your advantage when planning your taxes.
The company can still change the financial year-end later, but it requires a valid reason for change and approval from your shareholders (if applicable).
A common financial year-end that companies in Hong Kong choose is 31 December, the end of the calendar year or 31 March, the government's financial year-end. However, diverging from the "standard" dates can also be beneficial to your company's internal operations.
If your company registered in Hong Kong has subsidiaries, you are required to consolidate all financial statements. Choosing the same financial year-end for all subsidiaries streamlines the financial reporting and auditing processes, saving time and money.
Conversely, if your Hong Kong company is a subsidiary of a larger company, you should strongly consider matching the parent company's financial year-end.
Taxes are another factor to consider. Your company will receive its first Profits Tax return around 18 months after its incorporation.
However, subsequent tax returns are filed at around the same time each year. Your tax representative can maximize the filing time by choosing a financial year-end between April and November.
| Financial Year-End | Profits Tax Return Filing Due Date |
|---|---|
| N Code Returns (1 April–30 November) | 17 May 2023 |
| D Code Returns (1–31 December) | 29 August 2023 |
| M Code Returns (1 January–31 March) | 15 November 2023 |
| M Code Returns and Current Year Losses | 31 January 2024 |
An extension of one month is applicable if you file taxes electronically, except for M Code Returns and Current Year Losses. Also, the government strongly advises tax representatives to start filing returns before the due date.
It may be smart to avoid selecting December as your financial year-end because auditors and accountants are busy during the period. In some scenarios, moving away from this time may allow you to negotiate a discount and avoid an already stressful and busy time of year.
If your business experiences busy seasons, avoid scheduling the year-end during that time. Preparing financial reports during peak season increases operational demands and burdens your accounting team with additional responsibilities.
How to Prepare for Financial Year-End
Let's review the key steps to ensure your freshly established company is ready for the financial year-end.
Choose Financial Year-End at the Time of Incorporation
Although it's not a legal requirement, you should have the financial year planned out before the company is incorporated. Being intentional with your financial year-end makes it much easier to submit records on time and plan your finances.
Keep Up With Your Accounts
We strongly recommend adopting a proactive approach to managing your accounts by creating a monthly schedule. Being proactive ensures the smooth operation of your financial processes and streamlines your financial year-end.
Hong Kong Financial Reporting Standards (HKFRS) largely follow the International Financial Reporting Standards (IFRS) framework, with some minor differences.
However, there are significant differences between the HKFRS and the U.S. Generally Accepted Accounting Principles (GAAP). We are familiar with both Hong Kong and U.S. accounting standards and can assist you in preparing monthly statements.
Appoint an Auditor Before Your First Year-End
Appointing an auditor on time ensures they have sufficient time to prepare all documents and guide you through case-specific accounting details. A timely appointment can help prevent complications, such as audit adjustments and qualifications in the audit report.
In certain types of business, delaying the appointment until after the financial year-end may result in an inevitable qualification on the audit opinion.
Note that for some types of business, a qualification on the audit opinion is inevitable if the auditor is not appointed until after the financial year-end. For instance, if a company carries inventory, the auditor has to take stock on the financial year-end date. Failing to do that will result in the audit report being qualified.
Contact us if you need help with this step. We will liaise with auditors on your behalf and ensure a seamless process from start to finish.
Key Takeaways
When choosing a financial year-end, if the company is or has subsidiaries, align the financial year-end with the related companies so that you can consolidate all reports. Also, keep the seasonal peak in mind to avoid putting too much stress on your operations.
Do you have the correct financial year-end?
