Fiscal year-end date (or financial year-end date/accounting year-end date) for
– limited companies in Hong Kong: any date
– unincorporated businesses in Hong Kong: any date
– companies in Mainland China: 31 December
When you set up your Hong Kong company, it’s vitally important that you set the fiscal year-end date (or the financial year-end date/accounting year-end date) for your company. Unlike in China where every company has the same financial year-end date of 31 December, in the event you set up a limited company in Hong Kong, you are free to set your company’s year-end date. If you have an unincorporated business in Hong Kong, you are free to set your company’s year-end date as well. Choosing the right date for your company isn’t difficult but it’s important for you to understand the consequences before making a decision. So what year-end date should you choose?
When you look at it from an accounting perspective, it’s a good idea to have the same year-end date of the holding company if your company is a subsidiary. This makes it easier for the accountants of both companies to prepare their individual and consolidated financial statements, and it makes things easier for the auditor too. As a result of this, your company will pay less accounting and audit fees. If your companies have different dates, then the accountant will need to prepare two sets of financial statements – one set using the date of the Hong Kong company and another using the date of the holding company for consolidation purposes. The auditor will also be required to audit both sets of financial statements which will lead to higher accounting and auditing fees.
If your new Hong Kong company is a standalone company, you are free to choose the date you want to be your year-end date. The most common date business owners use is 31 December. Other popular choices are 31 March, 30 June, and 30 September. There is technically no difference in accounting no matter which date you choose but there will be some differences in taxation, which we’ll take a look at next. It’s important to note that the first financial period from the date your company was incorporated to your year-end date cannot be more than 18 months according to Hong Kong company law.
In Hong Kong, your company will receive its first profits tax return from the Inland Revenue Department 18 months after it’s incorporated. If you’re not sure what to do after receiving your tax return, you can find out more here. You need to submit your first tax return within three months of the date on the form. When you file your return you’ll be asked to declare the financial year-end date for your company. Following this, your annual profits tax return deadline is determined by your company’s year-end date. If you choose 31 December as your year-end date, then you need to submit your profits tax return by mid-August every year. If you choose 31 March, then the deadline is mid-November every year. If you choose a different date, then the submission deadline is the end of April every year. You might need to consider the workload on your accountant if the submission deadline is going to land in a peak sales period for your company.
The following table shows the profits tax return filing due dates for taxpayers who are represented.
|Financial year ended||Profits tax return filing due date||2019/20 due date (Further extended due to COVID-19)|
|Between 1 January and 31 March||Mid-November of the calendar year in which the financial year ended||30 November 2020|
|Between 1 April and 30 November||End-April of the following calendar year in which the financial year ended||30 June 2020|
|Between 1 December and 31 December||Mid-August of the following calendar year in which the financial year ended||30 September 2020|
The date you choose will also determine when you need to pay the profits tax of your Hong Kong company. The due date for paying your tax profits will usually be a few months after the profits tax return is filed. While Hong Kong enjoys one of the lowest profits tax rates in the world (8.25% to 16.5%), you could end up with some cash flow problems if you have a particularly successful year. If your company were to select the year-end date of 30 June for example, then the profits earned during the year ending 30 Jun 2019 will fall in the year of assessment 2019/20. As a result, the company will need to file its 2019/20 profits tax return in early May 2020 with profits tax payable in July or August 2020 (Due to COVID-19, the filing due date of the 2019/20 profits tax return was further extended to 30 June 2020, with profits tax payable shortly after the submission).
These are just some of the things you need to consider when choosing your fiscal year-end date. It’s important that you contact your accounting professional for more details about your specific situation before filing your tax return and declaring your year-end date.
Changing the Year-End Date
It’s possible to change the year-end date for your Hong Kong company from both an accounting and tax perspective, as it is permissible under the Hong Kong accounting standards and the Companies Ordinance. However, it is important to note that the financial year/period can never be longer than 18 months. If you have extended your company’s financial year/period within five years, it can’t be extended again under Hong Kong company law.
From a tax perspective, there might be a double assessment of profits unless the directors have a compelling reason to alter the year-end date. One such acceptable reason would be to conform with the practices of the group. It’s highly recommended that you consult with your tax consultant before changing it so as to minimize the extra tax burden. It’s also important to note that public companies and companies limited by guarantee have to report any change in their year-end date to the Companies Registry within 15 days.