The Whys And Hows Of Choosing A Hong Kong Financial Year End

What Is A Hong Kong Financial Year?

The Hong Kong financial year refers to the 12-month period for which businesses are expected to record and analyze their operations. During this period, a firm will calculate its earnings and losses and can effectively generate reports too.

The new Companies Ordinance stipulates that the Hong Kong financial year will begin on the first day of this reference period and end on its last day. Only during the first accounting year will this duration span 18 months.

Note that your tax return period and other obligatory filings will fall during this period. Therefore, it’s essential to prepare for them beforehand.

Every company has the right to decide the start and stop of its accounting period, but the duration remains the same (12 months). But remember, the effectiveness of your business operations will be determined based on the beginning and end of your Hong Kong financial year.

As a result, your financial year end may be a benefit or detriment to your business. Business owners usually aim for the former to maximize their profit-making operations.

What Is The Hong Kong Financial Year End?

If you’ve studied the business scene in Hong Kong, you’ll realize that there’s a lot of freedom in this jurisdiction. According to Hong Kong regulations, a company’s incorporation date is the start of its fiscal year.

However, there’s the freedom to make changes to the Hong Kong financial year of your own company. This means that the directors of your company can change its financial year end and date.

If your directors do not pick any date, government regulations stipulate that the final day of the month of your incorporation will be its year end. Companies with subsidiaries need to be cautious about their year end date.

They should ensure that the year end of the subsidiaries aligns with theirs.

Benefits Of Choosing The Right Hong Kong Financial Year End

As mentioned earlier, the Hong Kong financial year end of your business can be a merit or disadvantage. This period will significantly affect filling, taxation, accounting and annual compliance. requirements. If you’re able to settle on a favorable year end, you’ll enjoy these benefits:

Reduce Workload During Busy Seasons

Your accounting department may enjoy breathing space when your Hong Kong financial year end is distinct from the busy season. When you’re able to design your accounting year to be outside the peak season. You’ll have a clearer view of how your company is performing.

Let’s look at this example to understand how a busy season can increase the burden of a firm. Company XYZ has a financial year end of 30 June 20xx. Hong Kong regulations stipulate that all companies are to file necessary documents by 2 May 20xx.

There are no extensions for filing the profit tax return. For company XYZ to file their profit tax return, they’ll need to pay their profit tax earlier. Suppose the period they choose to pay the tax is a peak season. There’s a likelihood they’ll pay a higher amount than usual.

Reflect The True Nature Of Your Firm

In the business world, every entity is different. The reason behind these subtle differences is often related to the revenue-generating period of each entity. So, you’ll benefit more from a financial year that would let you reflect on these differences.

Let’s say your company makes the most of its profits in June but restocks in November. Using a traditional accounting year may not reflect your company’s true performance.

However, if you adjust your Hong Kong financial year end to contain profits and costs within the same period, you’d enjoy a better outlook for customers, stakeholders and investors.

How To Choose A Hong Kong Financial Year End Date?

Choosing a Hong Kong financial year end date can be tough. To reach a reasonable conclusion, you’d need to review any of these factors:

Accounting Factor

From an accounting perspective, it makes plenty of sense to fix the same year end date for the subsidiary and holding company. Doing this will make it easier to reconcile operations. Your accountants will also find it easier to prepare individual and consolidated financial statements.

Auditors will also be able to review your operations faster. In the long run, you’ll spend lesser on accounting and auditing.

If the subsidiary and holding company have different year end dates, the accountant will need to prepare different sets of financial statements for each firm. The auditor will also have to review these statements separately.

If your company is a standalone firm, you can choose whatever Hong Kong financial year end date you prefer. The most common date is 31 December, but you’ll also find 30 June, 31 March and 30 September.

As a standalone company, the year end date does not affect your accounting operations but may result in differences in taxation.

Tax Factor

According to Hong Kong regulations, your company should file its first profit tax return 18 months after its incorporation. You may handle this process yourself or hire a business consultancy firm. You can outsource your taxation if you’re a startup with limited staff.

You receive the government’s correspondence and submit the tax return within 3 months from the date on the form they’ll send to you. It’s important to note that the year end date of your firm will determine how much tax you file with the Inland Revenue Department.

If your year end date is 31 December, you’ll have until mid-August to file your tax return. But if the year end date is 31 March, you’ll have until mid-November to file your return. Any other year end dates have a deadline of April.

When choosing your year end date, consider your trading seasons and the workload on your accountant.

Hong Kong has a low tax rate, but if your year end date is not favorable, you could pay a high amount. If you choose 31 March as the financial year end date, tax will be charged on profits earned before 31 March in the current financial year.

Can A Hong Kong Company Change Its Financial Year End Date?

Yes, a Hong Kong company can alter its financial year end. Every company can set and amend its financial year end date. However, they can only do so with good reasons. These are some of the reasons why anyone may want to change the Hong Kong financial year end:

• You failed to pick your desired year end date after incorporating your company. When newly incorporated companies don’t choose a year end date on time, the Registry will issue a date. You have only 18 months in the first financial year so you’ll need to decide quickly.
• You want your annual tax return to fall during your business’s peak season. Companies do this to give themselves the best chance of having a positive cash flow.
• You’re a subsidiary or holding company and want to alter your year end date to align with the other entity.

The Hong Kong government allows companies to change their financial year end. However, there are several things that firms need to note. To start with, you’ll need to get consent from your shareholders.

If your company is limited by guarantee, you must inform the Companies Registry within 15 days. Failure to do so may result in your company being sanctioned.

Furthermore, if you have changed your Hong Kong financial year end date, it can’t be changed until after 5 years unless there are undeniable reasons for this change.