According to the Companies' Ordinance and to the Inland Revenue Ordinance all companies registered in Hong Kong are obliged to hold accounting of their activities according to Hong Kong GAAP standards.
The Hong Kong Inland Revenue Department requires all companies to keep proper accounting records for at least seven years and file tax returns annually
According to the Hong Kong Ordinance Section 122, a limited company must present an audited financial statement to the shareholder at each annual general meeting (AGM).
The audit should be carried out by a Certified Public Accounting (CPA) company, which is registered with relevant Hong Kong authorities.
Hong Kong has a simple scheduler system of tax, in which only specified types of profits, salaries and property rental income, are taxable.
For corporations the profits tax rate for profits arising from trade, profession or business carried on in the territory is currently 16.5%. However, only income and profits derived from Hong Kong are subject to tax.
As a company does not have to pay tax in the territory on income derived from outside Hong Kong, a 0% tax rate may apply for so called 'offshore business'. In order to justify such 'offshore business' the Hong Kong entity should consider the following requirements:
- the Hong Kong entity shall not have any employees in Hong Kong
- the Hong Kong entity shall not issue any invoices to and from other Hong Kong companies
- the Hong Kong entity shall not ship any goods through Hong Kong
- business decisions shall be made outside of Hong Kong.
Once the Hong Kong entity filed the 'offshore business' tax exemption claim, the Hong Kong Inland Revenue Department requests more detailed information about the profit derived from outside Hong Kong.