Understanding Financial Year End in Hong Kong

Understanding Financial Year End in Hong Kong

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Taxation

The fiscal cycle end of your business determines what kind of accounting and tax submission your company does. In this article, we will discuss how to run your business on an annual basis and what else you have to look at the end of the financial year. Thinking of starting a company in Hong Kong? When registering your company in Hong Kong, you can choose the date you want to declare your financial year.

What is a Financial Year?

A financial year is a yearly period that you will use for accounting and the presentation of your detailed financial statements related directly to the business operations. The bookkeeping and accounting documents for your business will be connected with the company’s fiscal year-end date.

The First Fiscal Year End (FYE)

In Hong Kong, a fiscal year begins with the date of the company’s incorporation. But, the end of your financial year doesn’t necessarily need to fall on the day of the company’s incorporation. The financial year end declared by your company’s directors determines when you should finish the financial year.

If you do not choose a fiscal year-end date by the new Companies Ordinance, the financial year-end date will be set automatically as the last day of the month of the company’s incorporation’s anniversary.

For instance, if the incorporation date: is on 1st April 2024, then the end of the financial year will be on 31st December 2024 which means the first Financial Year End will be 1st March 2022 – 3st  December 2023. 

In the case of a subsidiary, the board of directors should ensure that every subsidiary’s financial year is in line with the same date as the corporation’s fiscal year.

You’re the person in charge of deciding the dates for the end-year financial statements of the company. As per the Companies Ordinance, there are 2 popular choices, which are 31st December or 31st March, same as the Hong Kong Government’s financial year.

How To Choose A Date for Financial Year End

When it comes to choosing your business’s financial year end date, consider taking an accountant and a taxation point of view to set the date that will be most beneficial for your business.

Reasons why your company should change fiscal year-end

  1. Your company’s current financial year end (FYE) date is not set by you

At times, new businesses do not select their financial year-end dates as stated in the Companies Ordinance law under the Companies Ordinance regulation. Generally, if no date is provided by the company’s directors, then the fiscal year-end date is assigned automatically as the last day of the month in which the company’s incorporation started. Consider changing this date if it does not match your needs and make sure to choose the date depending on the efficiency of your business and production.

  1. Simplifying the parent firm’s financial year end 

Usually, the year-end fiscal dates are aligned with the parent company in the group presented for consolidation, especially the subsidiary under the parent company’s umbrella. The alignment of your company’s financial statements to the parent company’s fiscal calendar relieves you from the hassle of doubling your tax compliance initiatives and simplifies the accounting process. 

  1. For better cash flow

The fiscal year-end date that you choose will determine the net profit margin of your company. It suggests whether your yearly annual profit tax return date falls in alignment with or is in conflict with your company’s busiest time of the year. The wise choice of an accounting year-end can help to avoid several financial risks in the next few months when the annual tax payment is to be done.

Best dates to choose financial year end

  • Go with either 31st December or 31st March

You should choose either 31st December or 31st March because, as we mentioned earlier, the first one is the calendar year-end and the second one occurs the financial year of the Hong Kong Government. Besides, these two financial year ends would also get an extension deadline from the Inland Revenue Department which is to facilitate their transition since they adopted two financial year ends. Please take into consideration that you may also choose any financial year end date from 1 April to 30 November.

  • Choose the end of the month

Financial statements always follow the calendar months. No matter what fiscal year-end date you pick, it should always be at the end of a month. Selecting an FYE in the middle of the month can confuse your accounting and bookkeeping processes. 

Financial statements

Changing The Company’s financial year end: How To Do It?

When changing your company’s fiscal year-end date, you should be aware of the following additional FYE restrictions:

  • Following the new company’s fiscal year-end, the beginning of the first financial year end must not be more than 18 months.
  • The year-end of your company’s fiscal year should not be changed if this leads to audited financial statements and other documents related to this AGM being prepared at the AGM’s financial year end.
  • The first-time change of FYE sharing requires the approval of stakeholders other than being the case – only if you are doing it to synchronize with the FYE of the holding company.
  • A company limited by guarantee or a public company has to report any change in the year-end financial year within 15 days and provide information to the Companies Registry.

If your company has already changed the financial year end date before, you are allowed to only take on a new one under these specific conditions: 

  • The board members of your company have a valid business-related reason behind this modification,
  • If a business’s fiscal year end was adjusted 5 years ago, it will not be changed again unless it is a change in line with the parent company’s financial year end date.

How do I proceed to change my financial year-end?

After the choice of your most favorable year for the business cycle, you simply apply online to change the FYE. Make sure you remember that this leaves you with only 15 days after which to notify the Companies Registry.

How can Fastlane help you with changing your company’s financial year end?

FastLane Group has experience assisting more than 1000 businesses including small and medium-sized enterprises (SMEs) with the supervision of our company’s corporate services, accounting, audit, and tax advisory services
If you are interested in understanding more about the financial year for your business in Hong Kong, feel free to contact FastLane Group to talk with our team of experts.

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