When you register your company in Hong Kong, you are also entitled to the freedom of setting your own year-end date.
What does Financial Year mean?
It’s an annual period a business uses for the accounting and preparation of financial statements.
The bookkeeping and accounting records maintained for a business will be in relation to the company’s financial year-end date.
Your company’s first Financial Year End
In Hong Kong, a company’s fiscal year starts on their incorporation date. However, your Financial Year End Date doesn’t necessarily have to follow the date of incorporation. Your company’s directors have the authority to decide on the financial year end date.
If you decide not to pick a financial year end date in accordance with the new Companies Ordinance, the financial year end date will automatically be set as the last day of the month of the company’s incorporation’s first anniversary.
Your company’s first financial year-end should be within 18 months of its incorporation.
Incorporation date: 1 March 2020
Financial Year End: 31 December
First Financial Year End: 1 March 2020 - 31 December 2020
If a company has subsidiaries, the director’s board should make sure that each of its subsidiaries’ financial year is aligned with the corporation’s financial year.
What to Consider When Deciding on a Financial Year End Date
When you're trying to determine your company's financial year end date, consider thinking from an accounting and tax perspective to set a date that’s most beneficial for your business.
From an accounting perspective, it only makes sense to factor in whether the FYE will make it simpler or more complicated during your business’s accounting process.
For instance, you might want to align your company’s financial year end date with its related companies (e.g. holding company or subsidiary company) for consolidation. This way, the accounting process for the affiliated companies can be streamlined.
From a tax perspective, you should bear in mind the implications connected to your company’s tax obligations to the Hong Kong government, as the financial year end date will play a part in determining the annual profits tax return deadline.
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.
Your Financial Year End affects when you need to conduct audit or file Profits Tax Return
Your company should receive the first Profits Tax Return from the Inland Revenue Department within 18 months of the company’s incorporation. The Profits Tax Return must be completed and sent to the Inland Revenue Department. Your company will have three months to file the first Profits Tax Return, with the subsequent ones issued to the company in early April every year.
Elizabeth started her own luxury bag business, Reeborn, in December 2018. In June 2020, she received her first Profits Tax Return from the Inland Revenue Department. Being the law-abiding citizen that she is, Elizabeth submitted her first Profits Tax Return in August 2020, well before the three-month deadline was up.
The filing deadline would depend on whether your company has nominated a tax representative and your financial year end. If your company has not yet appointed a tax representative, the business will not get an extension to its deadline regardless of the FYE. You would then need to file the Profits Tax Return within one month from the date of issue of the return.
Usually, your auditors will also be your Hong Kong company’s tax representative in charge of applying for the extension of submission.
The extended filing dates for the different FYE are as follows:
|FYE||Standard Issue Date||Standard Filing Date||Profits Tax Return Extended Due Date|
|From 1 April to 30 November (Accounting Date Code “N”)||April's first working day in the following year of assessment||2 May||
No extension will be granted
(Typically end of April)
|From 1 December to 31 December (Accounting Date Code “D”)||2 May/ 15 August||Extension to 30 September|
|From 1 January to 31 March (Accounting Date Code “M”)||2 May/ 15 November||Extension to 30 November|
Before picking a date, think about whether your annual profits tax return deadline will clash with your company’s peak season and if there are foreseeable cash flow issues in the months that you are required to pay tax.
While there are some technicalities involved in changing your company's financial year end and things might feel overwhelming, fret not. Our experienced accountants in Hong Kong can help you with choosing an FYE from an accounting perspective for a seamless and convenient process so you can rest easy! Talk to us if you require help in determining your financial year end and any accounting work.