A Guide to Business Recordkeeping in Hong Kong

Good business recordkeeping is crucial for managing costs, and for staying on the right side of the regulations. If you are just starting up your business, recordkeeping might not be the first thing that comes to your mind, but it can help you build a strong foundation and keep your business running smoothly.

If you are a new business owner, the first year after you have registered your company in Hong Kong might be challenging for you as you decide which business records you have to keep. Fret not, the key is to simplify things into a series of clear and manageable tasks. From there, make sure that you access and maintain these records regularly to avoid having your paperwork pile up.

Read on for a guide to keeping business records, and the necessary records that companies must keep.

What Is Business Recordkeeping?

Recordkeeping is the act of recording transactions and events in an accounting system. Since the principles of accounting are dependent on accurate and thorough records, recordkeeping forms the basic foundation of accounting.

Why Should I Maintain Good Business Records?

Maintaining good business records is crucial for the success of your business. It ensures legal compliance, helps with your financial analysis, management, and audit preparedness. Accurate and organised records allow your business to track your income and expenses, manage cash flow, and make informed financial decisions. Additionally, good business records also help with communication and building trust with stakeholders such as investors and lenders. By maintaining well-organised records, your business can easily provide necessary documentation to prove your financial standing during audits.

Stay compliant with the law

Having a consistent record-keeping practice is not just good for your company’s operations but it is often a legal requirement in many jurisdictions across the world. Countries like Hong Kong and Singapore employ the services of corporate secretaries to ensure that companies are compliant with each countries’ regulations. Knowing where important documents are would also help them in their job.

Prevent theft or fraud

Staying prepared can help you prevent fraud, data breaches or identity theft. One of the main reasons these could happen is because of improper document management. To curb this, always keep detailed records of your business transactions and expenses so you can have a better understanding of your cash flow, thereby preventing fraud. Additionally, this information will help you to produce accurate financial statements when audit season comes around.

Prepare tax returns

When it comes to tax season, you will have to file documents with the Inland Revenue Department (IRD). These should include documentation related to credits, expenses and income included on your tax return. Should your tax return be audited by the IRD, having good business records can allow you to easily find supporting documentation and avoid any potential fees and taxes.

What Are the Required Business Records?

According to the Inland Revenue Ordinance, any company in Hong Kong that carries out a business, profession or trade is required to keep sufficient business records in English or Chinese. These business records should reflect the income and expenditure of a company so the assessable profits can be correctly figured out.

The required business records are:

• Accounting books recording income and expenditure or receipts and payments;
• Vouchers;
• Bank statements;
• Invoices;
• Receipts;
• Records of any liabilities and assets of the person related to that trade, business, or profession;
• Records of all entries from the daily sums of money received and expended which is related to that trade, business, or profession;
• Records of where that trade or business is involved in the purchasing or selling of goods;
• Records of where the business or trade is involved in the provision of services. A complete record of all services is required in sufficient detail for the Commission to readily verify the records.

Additionally, you need to maintain records of your bank accounts. To simplify matters, we recommend that you open a business bank account to differentiate the finances from your personal bank account. In relation to your business bank account, these records should be kept:

• Bank statements;
• Deposit receipts;
• Records of goods and services purchased;
• Cheque butts dealing;
• Amount stated on cheques;
• Payment date;
• Payee name;
• Records detailing whether the expenses were for personal or business matters.

What Are The Methods of Keeping Business Records?

In Hong Kong, paper or electronic records are both acceptable.

It may sometimes be tought to stick to one method of organisation, since some clients may be more traditional and accept only paper invoices, while others might be digital nomads and communicate with electronic receipts.

However, you should always keep the original document source such as bank deposit slips, invoices and check books, in case the need to run a check on your records arises.

Paper Method

Some business owners prefer to remain loyal to the old-fashioned ways of accounting by keeping paper records. However, the fact is that there is no significant benefit of keeping paper records since they are more susceptible to incidents such as coffee spills or misplacing of documents.

Electronic Method

If you have a huge volume of source documents to maintain, the Inland Revenue Department (IRD) allows for the storing of source documents in an alternate form. This can be through the scanning of documents and storing them in DVD-Roms or CD-Roms. This method is acceptable by the law and you can then keep the documents in these devices, which is a handy alternative to preserving the documents in their original forms.​​

Electronic records take place in various forms, but the most common two are scanned invoices and scanned receipts.

1 Scanned Invoices

You can easily keep a digitised version of your invoices, accounts payable and others simply by scanning them. This method saves you plenty of time, since scanning an invoice or taking a picture of it takes just a few seconds. Additionally, there is no need for paper and storage units to keep these records, reducing clutter in your office. For enhanced security, you can even encrypt your invoices with a password.

2 Scanned Receipts

The same advantages apply for scanned receipts. Did you know that you can easily scan and keep track of your receipts with the Osome app? This means that you can be efficient and fast, storing your receipts safely in no time. Furthermore, your financial data can be processed almost instantaneously.

How Long Should Company Records be Kept For?

You should maintain your business records for a minimum period of seven years. Failure to comply with the requirements of the Inland Revenue Ordinance without a valid excuse may result in a maximum fine of HKD $100,000. Even after you stop trading, your recordkeeping requirements continue until the seven year period has expired.

5 Best Practices for Business Recordkeeping

An effective recordkeeping system should not take up much of your time to maintain. When done correctly, the benefits of recordkeeping are aplenty and it should help you with bookkeeping, financial audits, and tax preparation.

To ensure that your company's records are well organised, accurate, and up to date, here are the top 5 best practices we recommend:

1 Implement a document management system

Make it a point to document all your business transactions, whether electronically or on paper. As the scale of your business expands, the pile of files and paper your business needs to keep also increases.

First, make all your records easily accessible by going paperless. This means that you will have to implement a digital document management system to help you organise your business documents. Finally, include a document control system that outlines the frequency you should review and update your documents.

Check for record retention mandates

Recordkeeping is a requirement for you to comply with document retention mandates. The most common business records include:

1. Sufficient records for your business's assessable profits to be ascertained. This includes business records to confirm your calculations:

• The books of account with your receipts and payments, or income and expenditure.
• A daily record of all the money received and used by your profession, trade, or business along with supporting details of the payments or receipts.
• A record of your business’s assets and liabilities.
• The underlying documentation required to verify the entries in your books of account; such as bank statements, vouchers, receipts, invoices, and other relevant documentation.

2. Records relevant to all your business assets and liabilities at the end of each year, including:

• Stocktake figures
• List of creditors and debtors

Additional records for businesses dealing in goods and business providing services can be found here.

3 Choose accounting and payroll software that generate records

Simplify your recordkeeping process by utilising software to help you generate records such as payroll tax forms and customer invoices.

Most accounting software can help you generate customer invoices. Your chosen software should also help you automatically with the bookkeeping basics, such as recording accounts receivable when you invoice a customer. If you need help with bookkeeping services, get your answers from our experts.

Your payroll software in Hong Kong should take care of the following features:

• Accurate calculation of salaries: The payroll software should be able to accurately calculate salaries, including deductions for taxes, social security, and other benefits.
• Attendance management: Your software should be able to track and manage employee attendance, including absences, leaves, and overtime.
• Leave management: The software should provide a leave management system that allows your employees to apply for leave, and managers to approve or reject leave requests.
• Compliance with tax and labour regulations: Your payroll software should comply with Hong Kong’s tax and labour regulations, including tax calculations, Mandatory Provident Fund (MPF) contributions, and statutory minimum wage requirements.
• Reporting and analytics: Your software should provide detailed reporting and analytics on payroll data, such as salaries, allowances, and deductions.
• Integration with accounting systems: Your payroll software should be able to integrate with accounting systems, allowing for efficient processing of financial transactions.
• Security and data privacy: The software should have robust security features and comply with data privacy regulations in Hong Kong.

4 Tally records to transactions during bank reconciliations

Make it a habit to match records to transactions during bank reconciliations. This will help you to better understand your financial position, and catch any errors. This also provides you with an opportunity to ensure you have maintained records for all your business transactions.

Every month, when you do your bank reconciliation, tally every transaction in your accounting software to a record. As you look through your transactions, ensure you have a matching contract, receipt, or invoice. Additionally, store your business records in your accounting software if possible, so that your employees who have access to the records can also view the associated record.

5 Keep a backup and secure your records

Backing up and securing your records is a crucial aspect of effective recordkeeping, especially since natural disasters and data breaches are rampant. Err on the side of caution, and keep backups of your records to avoid crying over spilled milk.

For your records stored on a hard drive or by paper, they should be backed up to at least one other location. By digitising your documents, you can preserve important information that could be stolen, lost, or destroyed.

You can also lower the risk of losing your records by storing them on cloud-based software, but this increases the risk of theft. Since your business records contain sensitive information, you should secure your account with a strong and unique password, and turn on your two-factor authentication to keep things secure.

Ensure Your Business’s Success

Effective business recordkeeping is critical for the success and growth of businesses in Hong Kong. Proper recordkeeping can help your business manage financial transactions, comply with legal and regulatory requirements, and make informed business decisions.

By following the best practices outlined in this guide, such as implementing a document management system, using payroll software, and backing up and securing records, your business can improve your recordkeeping practices and ensure the long-term success of your operations. Additionally, it is essential to stay up-to-date with record retention mandates in Hong Kong to avoid legal consequences and ensure compliance with regulations.

Ultimately, effective recordkeeping is a crucial component of any business strategy and can help your business thrive in Hong Kong's dynamic and competitive business landscape.

Melissa YeoBusiness Writer

Melissa has told stories for over eight years. She aims to make a difference for small business owners and entrepreneurs with every one of these stories. Her background in content and social media spans a range of industries, including publishing, ecommerce and marketing. She makes everything running a business less intimidating for Osome readers. Melissa's articles help you take the next step on your entrepreneurship journey, covering topics such as specific accounting and bookkeeping advice and insights for company growth.

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