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Determining Financial Year End for Hong Kong Company
For Hong Kong companies, a fiscal year end date is important. Also known as either financial year end dates or accounting year end dates, each company in Hong Kong is free to choose any date they wish as their fiscal year end date. Despite the freedom to choose your own financial year end dates, it is important that this decision be carefully thought out, as the date that you choose will have its own impact on the operation of the company.
However, in accordance with Hong Kong company law, the first financial period from the date when your company was incorporated and the date of your financial year-end must not exceed more than 18 months. Determining the financial year end for a Hong Kong company basically comes down to two factors which you need to consider – accounting and tax. Let’s take a look at these two perspectives now and why your decision should be based upon taking these two key points into consideration.
- Consider the Accounting Aspect – From an accounting standpoint, it makes more sense to have the same year-end date as the holding company if your company is a subsidiary. Why? Because this makes it easier for the accountants from both companies to quickly and efficiently prepare both individual and consolidated financial statements. This makes it much easier for the auditor too, and with a smooth-running process, your company will end up paying less in accounting and audit fees. The auditor of the company will be required to audit both sets of financial statements, and if they have to do this multiple times (different end-dates), this will significantly increase the cost of your accounting process. In Hong Kong, popular year end dates are generally 31 December or 31 March, 30 June or 30 September. While technically, there’s not of a difference in the accounting aspect no matter what date you choose, the difference will be during the taxation process.
- Consider the Tax Aspect – If you are a Hong Kong based company, you can expect to receive your first tax profit returns 18 months after you have been incorporated. The returns will come from the Inland Revenue Department. When you file your company’s returns, you must declare the financial year end date of your company in the tax return form. You will also need to submit your first tax return within 3 months of the date on the form. After this, the deadline of your annual profits tax return is going to be determined by your company’s year-end date. If your submission deadline falls during the peak sales period of your company, there is going to be a lot more work for your accountant to tackle, which is why it is important to choose the financial year end date of your company very carefully.
Fiscal Year End Date Explained
What is a fiscal year end date and how do you determine what the financial year end for a Hong Kong company is? Generally, most companies –whether in Hong Kong or abroad – would prepare a financial statement at the end of a fiscal year. The purpose of this statement would be for the filing and review by the management. A fiscal year is any period for 12 consecutive months which has been adopted by the company. The purpose of this period is for the financial reporting. The fiscal year end date would be when the account closing date of the company’s financial year is.
On top of preparing a financial statement for the company’s fiscal year, some companies even go one step further by preparing interim financial reports. These reports would generally cover between 1 to 3 months’ worth of activities, and they are highly useful in showing timely financial information. This then helps decision makers in the business promptly make decisions based on the available records.
Choosing Your Fiscal Year End Date
Every decision that you make in business is always important, and choosing the right fiscal year end date for your company is not to be left out. It is very important that you choose the right fiscal year end date, because this could provide your company with both the tax and operational advantages it needs.
The fiscal year or financial year end for a Hong Kong company does not necessarily need to be the same as its incorporation date. Companies have the flexibility of choosing any date they want as their financial or fiscal year end. Newly incorporated companies can fix any date they prefer as the fiscal year end date. If your company was incorporated on 1 June for example, it’s perfectly fine to have the fiscal year end date on 31 December.
To align with the Hong Kong government’s fiscal and financial year, a lot of companies in Hong Kong prefer to have their fiscal year end date at the end of the calendar year, which typically means either 31 December or 31 March. Of course, the dates for fiscal years would vary depending on your business and country of origin.
Hong Kong companies currently enjoy one of the lowest profit tax rates in the world, at 16.5%. However, your chosen financial year end date will also determine when your company will need to pay the profits tax, which is usually a few months after the profits tax return has been filed. If you have a successful year in terms of profits, your chosen financial year end date could potentially cause some cash flow problems if not selected correctly. An example of this would be if your financial year end date was 30 June 2018, which means that the profits earned during the year ending June would fall in the year of assessment for 2018/2019. This then means that your company will need to file its 2018/2019 profits tax return no later than May 2 2019, and the profits tax payable will be done in July or August 2019.
A good idea would be to consult your accounting professional, like 3E Accounting, for more details and guidance about your company before filing your tax returns and declaring the financial year end date for your Hong Kong company.
Is It Possible to Change My Hong Kong Company’s Financial Year End Date?
Yes, it is entirely possible from both an accounting and tax aspect. Hong Kong accounting standards and the Company Ordinance allow for a company to change its financial year end. However, the financial year or period must not be more than 18-months. Unless the directors of the company have a valid reason for the change, there might be a double assessment of profits from a tax perspective.
If you have extended your company’s financial year / period within five years, it can’t be extended again unless the change is to coincide with the financial year end date of its holding company, or this change is approved by members’ resolution. If you are a public company, you will need to report the change of your financial year-end date to the Companies Registry within 15 days after the date of the directors’ resolution specifying the change.
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