It is very essential for overseas companies who want to establish their operations in this rapidly growing city of Hong Kong to understand the concept of the financial year end in Hong Kong.
The financial year end means the closing of a company’s twelve-month accounting period, which has significant importance in accounting, tax, and business operations.
In this article, the financial year end in Hong Kong needs to be examined and we will give you some suggestions after which you can take the correct decision.
Whether you are deciding on a financial year end (FYE) or not choosing one yet, seeking account consultancy or advice on the matters of accounting taxation and business consulting, our FastLane team is always present for you to assist at every step of the way.
Content Outline
What Does The Financial Year Concern Hong Kong?
In Hong Kong, normally, a financial year which is also called a fiscal year is a time of any 12 months that a company uses for preparing financial statements.
The financial year can begin on any date, provided it spans a continuous and uninterrupted period of twelve months, unlike the calendar year which starts on January 1st.
It is also worth mentioning that the company’s first year-end (FYE) date is not usually tied to its company incorporation day, regardless of the fact that everyone is mandated to have a standard FYE period.
The End Of The First Financial Year
In Hong Kong, a firm may commence its first financial year from the date of its incorporation and it will end on a certain date, which is specified by the company’s directors. It is suggested that the directors should adopt the financial year end of the incorporation date as this will make it easier to comply with and manage finances.
Many companies in Hong Kong opt to set their financial year end on:
- Choosing December 31st to coincide with the calendar year or
- March 31st to align with the financial year of the Hong Kong Government.
Yet, the Companies Ordinance is there as well and there are situations in which recently-established companies do not specify when their financial year end date is. For the situations that the directors of the company don’t decide on the financial year end date, the automatically setting this date as the last day of the month in which the first anniversary from the incorporation of the company falls will be done. This could be shown in another way, for instance, a financial year end date of 31 July 2024 corresponds to an incorporation date of 9 July 2023.
The date of incorporation is the date when the company was registered and the first year-end should fall within 18 months from the registration date to maintain consistency and comply with the regulations.
Hence, the first financial year of a Hong Kong company will not be longer and more than 18 months from the time the company was registered.
Apart from drafting the first FYE report, which is fundamental to future reporting cycles, business owners also need to have a clear and concise accounting framework that will make it easier for them to access the information of the company.
What Should Be Considered When Choosing The Financial Year-End Date?
On the issue of choosing your company’s financial year-end date, consider this aspect from the accounting, tax, and operational sides, and pick an appropriate date for your convenience and benefits.
Accounting
In addition to all the accounting requirements, it is also vital that you carefully consider the financial year end date for your company in Hong Kong to make sure the accounting process is indeed running smoothly. In case your company is incorporated within a group of companies (particularly in case of holding company with subsidiaries), it is wise to synchronize all entities’ financial year ends unless there are strong reasons against it. This consistent will make it much easier for the account preparation.
The savings in time and costs alone far exceed the potential problems that this measure may cause both in accounting and auditing.
In addition to this, some firms take into consideration the year end dates of their sales or business operations in the calculation of the financial year end date, as elaborated in the ‘business operations’.
Tax
The tax implications are another factor that should be taken into account when choosing the financial year-end date for the company in Hong Kong.
The closing of the financial year end causes PTR (Profit tax return) filing procedure timing and conditions to be affected. It is vital to comprehend the deadlines imposed by the Inland Revenue Department (IRD).
The deadline for the PTR filing is determined by whether you appointed a tax representative and the year ending of your company which is usually associated with a specific financial year.
Traditionally, the IRD sends the PTR through mail to the taxpayers during the first two weeks of April. Thus, the PTRs filed alongside the audited financial statement for the relevant period are, within one month of the issued date, that is, in early May.
In general, the filing deadline can be extended in the following ways if you want to designate a tax agent such as FastLane to manage the tax fillings:
| Financial Year-End Date | Extended Filing Due Date (Note 1) |
|---|---|
| From 1 April to 30 November (Accounting Date Code “N”) | Early May next year (i.e. no extension will be granted) |
| From 1 December to 31 December (Accounting Date Code “D”) | Mid-August next year |
| From 1 January to 31 March (Accounting Date Code “M”) | Mid-November the same year (Note 2) |
Notes:
- Plan the filing electronically if you intend to have an additional month.
- If the taxpayers with a loss of tax for that year of assessment want to have their filing deadline extended, it can probably be further extended for about 2 months to January of the coming year.
Technically, it is necessary to write an application to the IRD to obtain an extension for processing the PTRs if you do not allocate a tax representative to file the Profits Tax Return for you.
In general, IRD usually issues the Profits Tax Return of a company the first 18 months after the company’s establishment.
While selecting your financial year, think about whether the date of reporting is possible within the main season of your field of activity and whether your business will face a lack of money as long as payments for the taxes are due.
Through thoughtful tax planning you can strategically plan for expected tax liabilities, avoid getting penalized, and simplify the lengthy and rather complex levies process for your company in Hong Kong.
The FYE date can be changed by the company. Nonetheless, IRD’s audit team may study the tax implications associated with such deferments, such as a tax adjustment for the delayed tax payment as well as tax benefits. Therefore, it is recommended that commercial considerations be considered while changing the FYE date.
Business operations
The financial year-end should be aligned with your business cycle so that your company can capture revenue and expenses accurately and report both in the same tax year.
Choosing a fiscal year-end month with a slower activity helps to spread the load on your accounting department and smooth the financial reporting processes.
Most companies establish the dates of quarters (e.g. March 31st, September 30th, or December 31st), to come along the fiscal year ending. This allows the businesses to set up for any changes in revenue and whichever activity until the end of the quarter and as a result, a confident and comprehensive financial statement is achieved.
The Process of Changing the Financial Year End
The Hong Kong Companies Ordinance and Accounting Standards allow changing the financial year-end date of a company that is in Hong Kong. This can happen only if there is evidence that supports the reason for such change.
A company might think about changing its FYE in a few different circumstances:
- Alignment with the Hong Kong Government’s fiscal year: A lot of companies in Hong Kong choose their financial year to end on the 31st of March for the convenience of aligning with the national fiscal year that ends on the same month of the calendar year.
- Becoming a member company of a group: A reason for postponing the financial year-end is the case when the Hong Kong company joins a group and is required to match its finances with the other group companies.
The following limitations and considerations can impact a company’s ability to change its financial year-end date:
- The first financial year or period following the change must not exceed 18 months to ensure consistency.
- Typically, director’s approval is necessary to alter the year end date. However, if it’s not the initial change or extension, shareholders’ approval is also required, except when aligning with the holding company’s financial year end.
- For public companies or those limited by guarantee, the alteration must be reported to the Companies Registry within 15 days.
A company needs to make the necessary accounting adjustments once it decides to change the new financial year-end. This takes on various roles that may have a significant impact on profit tax obligations eventually causing recalculation of the current tax obligations as explained above.
However, the way to get upfront clarification from IRD on whether any tax adjustment might arise from the FYE date change is to request an advanced ruling before the documentation.
How FastLane Group Can Help
Annual report preparation, taxation, and other major business functions depend a lot on choosing the right financial end date for the year.
By adopting the financial year-end to the related companies within a group, you can simplify the accounting processes. On the other hand, consideration of tax obligations as well as the business cycles guarantees proper financial reports.
However, if you need expert help in any accounting, tax, and business consulting; then kindly approach our experienced team can assist you happily. Contact us for more details and our expert team will gladly assist you.