Hong Kong companies are allowed to decide their own financial year-end date, with most businesses choosing it to be either 31 December or 31 March, to coincide with the Hong Kong Government’s financial year. Find out why you should consider these dates to be your financial year-end (let’s refer to it as FYE from now on), and how to change it if its other dates instead.
By the way, if you prefer focusing on your own business growth and want to leave the paperwork of running your business to a group of trusted experts, we can help with corporate secretary tasks in Hong Kong, and also bookkeeping and accounting for small to medium businesses.
3 Reasons to Change Your Company’s Financial Year End
1. Your current Financial Year End Date was not chosen by you
Sometimes, newly incorporated companies fail to choose a a fiscal year-end date under the Companies Ordinance legislation. In these cases where no date is stated by the company’s directors, the fiscal year-end date will automatically be assigned as the last day of the month of the company’s incorporation’s first anniversary. It might not be your ideal date and you might want to change it.
2. You want to streamline with a parent company’s year-end date
It is a common practice to align your financial year-end date with that of your affiliated companies for the purpose of consolidation, especially if your company is a subsidiary of a larger parent company. The alignment of your company and your larger parent company or subsidiary’s Financial Year End date equates to a simpler accounting process. When consolidating the corporation’s financial statements, the accounting treatments that must be done can be kept to a minimum.
3. You want better cash flow
Picking a Financial Year End date that works best for your company is important. It will determine whether your annual profits tax return deadline clashes with your company’s peak season. With an ideal fiscal year-end date, you can reduce the risk of any foreseeable cash flow issues in the months that you are required to pay tax.
Tips on Which Dates are Best for Financial Year End
We have 2 tips for you to quickly read through, but if you want a further read considering the dates from an accounting and tax perspective, we have an article for you.
Choose either 31 December or 31 March
Most Hong Kong companies will choose its financial year end date to be either 31 December or 31 March, with the former being the calendar year end and the latter to coincide with the financial year of the Hong Kong Government. This is also the reason why the Inland Revenue Department would offer an extension for corporations with these two financial year end. Nonetheless, companies in Hong Kong can also choose a financial year end date any day between 1 April to 30 November.
Pick the end of a month
On top of that, companies should always pick the end of a month as the fiscal year end date, since financial statements follow the calendar months. If you choose a FYE in the middle of the month, the accounting process can be a headache.
How to Change Your Company’s Financial Year End
If your business is a single company on its own, you will be free to decide on the financial year-end. Just contact your Corporate Secretary to do so. We provide Corporate Secretarial services in Hong Kong. Drop us a chat to find out more.
While in general, you are free to change the date whenever you want to, there are some restrictions to take note of:
- After you’ve made a change in your company’s financial year-end, the first financial year must not exceed more than 18 months.
- Your company cannot change its financial year-end on a date that would result in you submitting your audited financial statements and other related documents in an annual general meeting that same financial year.
- If this is not your first time changing the financial year-end date, you’ll need your shareholders’ approval, unless you’re doing so to sync up with your holding company’s financial year-end
- A company limited by guarantee or a public company is required to report any change in financial year-end within 15 days and inform the Companies Registry. We can help you with this.
If your company has previously changed the financial year-end date, then you may only take on a new one under certain circumstances:
- Your company directors have a good reason for this change (it must be related to your business)
- If your business’s financial year-end was adjusted within 5 years, it cannot be changed again unless the alteration is to align with the holding company’s financial year-end date
What do I do next to change my financial year-end?
So you've taken the time to review the period that is best suited with your business cycles. The next step would be to change your business's financial year-end.
You can apply to change the date online, and the change in the financial year-end has to be reported to the Companies Registry within 15 days. If you need someone to help you with this, feel free to talk to us.