All companies incorporated in Hong Kong are required to do Annual Filing of certain documents every year. The deadlines set for filing are different for each document.
You will usually need to file your documents by a fixed time, either by a particular date or months after the date of incorporation. However, business owners are often so busy with business engagement that they forget about the deadlines.
As a result, they are penalised for late filing of documents. Getting penalised affects the company and the business’s cash flow. In this article, we will cover the type of filing documents and the penalties for late filing of documents.
Types of Documents That Need Filing
Filing documents refer to submitting a particular set of statutory documents to the Hong Kong authorities by a prescribed time frame. Here are the three types of filing documents your company should take note of:
An Annual Return is a specific type of form that contains the particulars of your company such as the company’s registered address, shareholders, directors, secretaries and many more.
The form is called NAR1 and you will need to file this form with the Companies Registry. For local private limited companies incorporated in Hong Kong under Company Ordinance, you are required to file an annual return once a year, and it must be within 42 days of the anniversary of the company’s incorporation date.
If you have been running a business for a period of time, there is no change in the company’s particulars, that is perfectly fine. But you still need to file the return every year. Similarly, if there is a change in the company’s particulars in the course of running your business, you will need to notify the Companies Registry of the necessary changes within 15 days after the date of change.
Do remember to get your director, company secretary, manager or any authorised representative with Companies Registry to sign the form before the filing. The annual registration fee is HK$105.
Annual Tax Return
Also known as Profits Tax Return, companies are required to file Annual Tax Return every year, along with its audited accounts with the Inland Revenue Department (IRD). Notifications of tax return filing from IRD will be sent out to companies every 1st April of the year. For newly-incorporated private limited companies, the notifications will only be sent out 18 months after the date of incorporation. But in the following year, you must file the Annual Tax return within one month from the date of notification.
Another return form that IRD issues to all Hong Kong companies on 1st of April each year is Employer’s Return BIR56A. Employers are required to fill out the form and file it with IRD within one month after receiving it. As long as you are employing staff to run your business, you will need to file this. What about the newly-incorporated company? You will receive the form within 3 to 6 months after your first audit. Do bear this in mind at the end of your assessment year.
Still confused about the different types of filing documents? Speak with us and we will advise you on the filing documents.
What Are the Late Tax Filing Penalties?
Now that you are aware of the different types of filing documents and the respective deadlines, it is also important to think about the late tax filing penalties. No company likes to submit their documents late. But it is common to find companies that miss out on deadlines. Likewise, there are also new company’s officers who might not be aware of the late tax filing penalties. This is a good opportunity to get a refresher on the late tax filing penalties:
Annual Tax Return
Aside from filing Annual Tax Return on time, business owners often fail to declare sufficient information in the return form during their filing. This will result in paying a penalty. Submitting a proper and complete document to the IRD is very crucial.
If you fail to file a valid Annual Tax Return to the IRD by the due date, you will have to pay a compound penalty of HK$10,000. And that’s not all! According to Section 82A of the Inland Revenue Ordinance, you will need to pay additional tax for any amount undercharged. Here are the charges:
|Group (i)||10% of the amount of tax undercharged|
|Group (ii)||20% of the amount of tax undercharged, if the return is filed after two or more estimated assessments are issued|
|Second Offence within 5 years|
|Group (i)||20% of the amount of tax undercharged|
|Group (ii)||30% of the amount of tax undercharged, if the return is filed after two or more estimated assessments are issued|
|Third or subsequent offences within 5 years|
|Group (i)||35% of the amount of tax undercharged|
|Group (ii)||50% of the amount of tax undercharged, if the return is filed after two or more estimated assessments are issued|
Offences, in this instance, come in the form of a warning letter; a compound, a court fine or a section of 82A penalty assessment has been issued.
In 1993, Tai Yip Class Co failed to file an Annual Tax Return for the year of assessment 1992/93. Despite the extension given by the IRD, the company failed to file the returns on and before the extended due date. As a result, an estimated sum of HK$1,600,000 was raised to the company. When the company finally filed the tax return together with its audited account, which amounted to a net assessable profits of HK$1,316.141, the IRD issued a revised assessment for the year to that amount. The company explained the delay in filing was due to the lack of clerical staff in the auditor’s firm. After much consideration, the Commissioner of Inland Revenue imposed an additional tax of HK$45,000 to the company.
It is the responsibility of every director, secretary and manager to ensure that the Annual Returns are filed on time, as they are liable for prosecution for any delay in filing. Failure to file the Annual Returns within a prescribed time period will result in a maximum penalty of HK$50,000 for each breach. There is also a daily default fine of HK$1,000. On top of this penalty, you will need to pay a substantially higher registration fee.
You may refer to these higher registration fees.
Hong Kong employers need to ensure that the information reported in the Employer’s Return is accurate and complete. If the employer fails to comply with the return’s obligations, they will be subject to a heavy fine of HK$10,000 and the IRD may order the employer to complete the obligations within a specific time.
Why It Matters
The process of filing documents can be confusing and messy at times. So business owners often do not consider annual filing as their main priority. However, there are certain implications when you do not file your company’s returns on time. Depending on the offences, you might be paying additional tax or higher registration fee. Apart from paying hefty late filing penalties, managing your company’s records and deadlines gives you an opportunity to know your company’s business financial standing. It also shows that you are running a business in compliance with the Hong Kong business law.
There are three main filing documents, which your company needs to take note of: Annual Tax Return, Annual Return and Employer’s Return. Each of these documents has a different deadline. Paying a late filing penalty may cause disruptions to your business’s cash flow. As a business owner, you don’t have to handle the stress all by yourself. To minimise the risk of missing the deadline, come and speak to our experienced accountants, and we will sort it out for you!