Hong Kong Company Maintenance and Compliance Guide (11) – Keeping Proper Business Records

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  1. Keeping of Proper Business Records as Required by the Hong Kong Tax Authority

Every year, the Hong Kong Inland Revenue Department will issue a Profits Tax Return (PTR) to every company. When the company receives the tax return, it has to complete and return it together with a copy of audited accounts and a tax computation. Only in the case that the company has not yet commenced its business or is a small size company or all operation and business are carried outside Hong Kong. However, the exemption from filing audited financial statements by the Inland Revenue Ordinance does not exemption the company from auditing of its financial statements. Therefore, every company must to prepare its account and engage a Hong Kong public accounting firm registered with HKICPA (the statutory body regulating the accounting profession in Hong Kong) to carry out an audit of the financial statements of the company.

For the above reason, the Hong Kong Inland Revenue Department has an Ordinance (Inland Revenue Ordinance) to require each company has to keep its operating record. Please see the below information;

 

RECORD KEEPING
The records prescribed in the Ordinance include :
a. books of accounts recording receipts and payments, or income and expenditure;
b. vouchers, bank statements, invoices, receipts;
i Banking records (e.g. check books, bank deposit slips, bank statement, cheque butts and bank advices)
ii Records of income (e.g. Receipts, Invoices issued and credit notes)
iii Records of purchases and expense (e.g. receipts obtained for payments made and invoices received)
c. records of the assets and liabilities of the person in relation to that trade, profession or business; (e.g. Invoices received, receipts obtained for payments made and contract of purchase and sales)
d. records of all entries from day to day of all sums of money received and expended in relation to that trade, profession or business;
e. where that trade, profession or business involves dealing in goods
i you must maintain records relating to your purchases and sales. This included full particulars of all goods purchased and all goods sold. The invoices for the transactions must show goods, and buyers and sellers;
ii records of stock movement;
iii statements of trading stock held by the person at the end of the accounting period and all records of stocktaking from which any such statement of trading stock has been prepared;
f. where that trade, profession or business involves the provision of services –
i you must keep a record all services provided in sufficient detail;
g. all agreements and contracts

 

According to Section 51C of the Inland Revenue Ordinance, which requires taht every company carrying out business in Hong Kong keeps sufficient records in the English or Chinese language of its income and expenditure to enable the assessable profits to be readily ascertained. Such records shall be retained for a period of not less than 7 years. Failure to comply with the requirements of the Ordinance without reasonable excuse may be liable to a maximum fine of HKD100,000.

 

  1. Documents Required for Preparation of Financial Statements

For your easy reference, we have drawn up a checklist for the relevant documents required in accordance with the instructions by Inland Revenue Department for the purpose of preparation of financial statements and for the purpose of auditing of the financial statements so prepared and tax filing, details are summarized as follows: –

 

Type of Transaction Record to be Maintained
Sales Sales invoice

Goods return note

Receipt slip

Daily receipt record
Purchases Purchases invoice

Petty cash voucher

Payment slip

Cheque stub

Statement
General expenses Expenses invoice

Payment receipt

Cheque stub

Salary record
Bank transaction Bank statements

Bank paid-in slip and related receipt details

Cheque stub and copy

(Please specify the transaction amount, nature and payee details)
Tangible assets Purchase and sale agreement

Invoice and receipt

Cheque stub and copy
Inventory Purchase and sale agreement

Invoice and receipt

Cheque stub and copy?

Inventory list (Including quantity and unit cost on every items)

Obsolete or slowing-moving inventory
Investment Security ask/bid confirmation slip

Purchase and sale agreement

Capital inspection report (Apply for PRC investment)

All above information are for reference only

Notes:

  • For the purpose of updating the books of accounts and auditing of financial statements of your Hong Kong company, should we be engaged to perform accounting and auditing for your company, you should gather and provide the documents/materials listed in the table to us.
  • In accordance with the requirements of Inland Revenue Ordinance, the materials listed in the table above are required to be kept for a period of 7 years after the end of the relevant financial years.
  • The materials listed in the table above are not required to be enclosed with the Profits Tax Return for the purpose of reporting income of your company. However, the Inland Revenue Department is empowered to request that any or all of the materials listed above be produced should it consider necessary.
  • At the time of filing the Profits Tax Return, a copy of audited financial statements and a tax computation should be attached to that Profits Tax Return.
  • For the tax filing purpose, if the turnover of a company is less than HKD500,000, audited financial statements and tax computation are not required to be attached to the Profits Tax Return. However, this does not exempt the company from financial statements audit. Auditing of annual financial statements is required by the Companies Ordinance.
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