Cost: from 1200 EUR


Auditing in Hong Kong

An audit is a formal unbiased examination and evaluation of your company’s financial statements by a third party. All Hong Kong companies are required to submit their annual financial statements for examination by Certified Public Accountants (CPAs).

Hong Kong companies independently seek and hire qualified professionals to conduct the annual audit. Some business owners in Hong Kong do not attach importance to auditing, but this can lead to unfortunate consequences. The audit is an extremely important aspect of business, and it should be given close attention from the date on which you register a company.

Auditing in Hong Kong

The selection of an auditor is important as the audit report can have far-reaching consequences for your business. For example, it determines whether you will be able to obtain loans for business, whether the government and banks will trust you, and whether you will be able to obtain tax-free status if you have conducted business only outside Hong Kong. As you can see, it is critical that the audit be performed by an expert who understands the structure of your business.

As soon as your company is incorporated in Hong Kong, you will receive your first Profit Tax Return (PTR) – 18 months after registration. By this time, you need to carefully prepare your accounting records for the audit and submit your first report along with a completed tax return to the Hong Kong Inland Revenue Department (IRD). In the future, you will receive a PTR once a year, which means that you will have to keep records and be audited on an annual basis. 

Some people decide to keep their own books for the sake of economy. However, it is worth remembering that the profit and loss account and balance sheet must be properly prepared in accordance with the established requirements, otherwise, you will not pass the audit. In addition, an experienced accountant will be able to advise you on any issues and help you plan your own legal tax strategy. We are not only engaged in conducting audits but also deal with accounting and reporting. Yet, external audit remains one of our top priorities.

Audit in Hong Kong: What Documents Should Be Provided to the Auditor?

Each Hong Kong company is required to provide the auditor with complete financial statements, including a balance sheet, profit and loss account, and cash flow table with a detailed description of all transactions and supporting documentation. Failure to do so will make it impossible to conduct an audit.

Accompanying documents on external audit include:

  • Bank statements of all accounts held by the company
  • Sales and vendor invoices with waybills/bills of lading
  • All outgoing and incoming payment documents with payment details
  • Copies of all bank checks with stubs
  • All contracts signed by the company during the reporting period

If the audit is ordered by a company claiming a tax-free status (that receives no income in Hong Kong), all goods sale invoices must be accompanied by orders from buyers and contracts signed with buyers, while all vendor invoices must be accompanied by contracts signed with suppliers. Based on the analysis of these documents, the hired audit expert will decide whether the company is entitled to tax-free status or not.

As a rule, only copies of all these documents are requested, but in some cases they may also ask for originals (which will be returned after the audit). All the above documents are provided for the reporting period + 3 months after its termination. This is necessary to demonstrate the development of your activities in the next reporting period.


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Audit in Hong Kong: How to Get Tax-Free Status?

Hong Kong is a jurisdiction that adopted a territorial principle of income tax. Business owners in Hong Kong have to pay a tax of 8.25% on the first HKD 2 million of profit and 16.5% on any receipts exceeding that amount. If the company did not conduct any business in Hong Kong, it is exempt from the obligation to pay income tax. Among other taxes, payments to the pension fund in the amount of 5% of the local employees’ wages should be noted. But if there are none, you don’t have to pay that tax.

The final audit report reflects the territorial nature of your business, which will determine whether you will be able to obtain an exemption from income tax.

The process of assigning a tax-free status begins with the submission of an application along with the audit report to the IRD, in which you request the possibility of exemption from taxes for the specified reporting period on the basis of your actual activities (which are confirmed in the audit report). During the review of your application, the IRD usually asks questions that you will have to answer promptly. An expert performing an audit can help you answer these questions correctly for a fee.

As a rule, consideration of the application for tax-free status lasts from 3 to 6 months. If the IRD makes a positive decision, you will be exempt from the obligation to pay income tax. If a negative decision is made, you will have to pay the tax for the past reporting period (based on the submitted PTR) and for the upcoming reporting period (based on the calculation of the estimated profit). Subsequently, if you make less profit, the excess amount of tax paid by you will be taken into account in the tax calculation for the next year.

Overall, the following conditions must be met in order to obtain a tax-free status (mind that they do not depend on the fact of the audit!):

  • A Hong Kong company should be managed outside Hong Kong, that is, the directors and employees must be non-residents of Hong Kong based in other countries.
  • Signing agreements or contracts, receiving orders, and arranging shipments should also take place outside Hong Kong. The IRD may even request the director’s foreign passport to check whether he crossed Hong Kong’s border to sign contracts.
  • Goods should not be moved within Hong Kong. But this does not apply to the goods shipped from China and other states that pass through the transit zone.
  • The company should not have any transactions for the sale/purchase of goods or services with Hong Kong residents. But this does not apply to cooperation with local secretarial companies or auditors.
  • Interaction with suppliers/customers should not take place through the means of communication related to Hong Kong. For example, you do not need to use phones or domain names registered in Hong Kong to communicate with suppliers and/or customers. That is, if you receive orders and payment for your goods or services through a website with a “.hk” or “” domain, this will be considered as conducting business in Hong Kong.

The IRD also takes into account the company’s history to decide whether it has had a tax-free status or paid taxes. If the company paid income tax, it would be much harder to get an exemption.

There is another unspoken principle that is often overlooked in an audit procedure. A Hong Kong company may interact with local companies and obtain tax exemption if the volume of such transactions, both in terms of amount and quantity, does not exceed 10% of the total volume of transactions. At the same time, if the volume of transactions with Hong Kong residents exceeds 10%, the IRD may require the company to pay tax on all its net profits received both in Hong Kong and abroad.

If the scope of interaction with local residents does not exceed 10%, the IRD may either fully exempt the company from taxation or ask it to pay the tax only on the profits received from transactions related to Hong Kong.

Audit of Hong Kong Companies: Cost of Services

Audit costs depend on the complexity of a particular case, the company’s turnover, and the time spent on reviewing financial statements and documentation. Hong Kong auditors take their work very seriously as they bear serious responsibility (and can even be held criminally liable) for the correct preparation of the audit report on the basis of the information and documents received from the client.

At the same time, the auditor signs an agreement with the client where the client confirms that all the information provided to him is complete and reliable. Therefore, if the IRD later identifies any inconsistencies related to information or documents that were not provided in due time to the auditors, it will be the client’s responsibility.

The cost of the auditor’s services is specified in the following table:

Turnover for the reporting period, USDNumber of transactionsAudit cost, USD
Up to US$100,0000 to 1001,200.00
 From 101 to 2001,200.00 (including the first 100 transactions) + 5.50 for each additional transaction
 201 — 3001,750.00 (including the first 200 transactions) + 4.50 for each additional transaction
 301 and aboveAdditional approval required
US$100,001 to US$250,000Including up to 100 transactions1,300.00
 101 — 2001,300.00 (including the first 100 transactions) + 6.00 for each additional transaction
 201 — 3001,900.00 (including the first 200 transactions) + 5.00 for each additional transaction
 301 and aboveAdditional approval required
US$250,001 to US$500,000Including up to 100 transactions1,400.00
 101 — 2001,400.00 (including the first 100 transactions) + 6.50 for each additional transaction
 201 — 3002,050.00 (including the first 200 transactions) + 5.50 for each additional transaction
 301 and aboveAdditional approval required
US$500,001 to US$1,000,000Including up to 100 transactions1,600.00
 101 — 2001,600.00 (including the first 100 transactions) + 7.00 for each additional transaction
 201 — 3002,300.00 (including the first 200 transactions) + 6.00 for each additional transaction
 301 and aboveAdditional approval required
US$1,000,001 to US$2,500,000Including up to 100 transactions1,850.00
 101 — 2001,850.00 (including the first 100 transactions) + 7.50 for each additional transaction
 201 — 3002,600.00 (including the first 200 transactions) + 6.50 for each additional transaction
 301 and aboveAdditional approval required
US$2,500,001 to US$5,000,000Including up to 100 transactions2,150.00
 101 — 2002,150.00 (including the first 100 transactions) + 8.00 for each additional transaction
 201 — 3002,950.00 (including the first 200 transactions) + 7.00 for each additional transaction
 301 and aboveAdditional approval required
US$5,000,001 to US$10,000,000Including up to 100 transactions2,450.00
 101 — 2002,450.00 (including the first 100 transactions) + 9.00 for each additional transaction
 201 — 3003,350.00 (including the first 200 transactions) + 8.00 for each additional transaction
 301 and aboveAdditional approval required
US$10,000,001 to US$20,000,000Including up to 100 transactions3,450.00
 101 — 2003,450.00 (including the first 100 transactions) + 10.00 for each additional transaction
 201 — 3004,450.00 (including the first 200 transactions) + 9.00 for each additional transaction
 301 and aboveAdditional approval required
US$20,000,001 to US$30,000,000Including up to 100 transactions4,600.00
 101 — 2004,600.00 (including the first 100 transactions) + 11.00 for each additional transaction
 201 — 3005,700.00 (including the first 200 transactions) + 10.00 for each additional transaction
 301 and aboveAdditional approval required
US$30,000,001 to US$50,000,000Including up to 100 transactions5,750.00
 101 — 2005,750.00 (including the first 100 transactions) + 12.00 for each additional transaction
 201 — 3006,950.00 (including the first 200 transactions) + 11.00 for each additional transaction
 301 and aboveAdditional approval required
US$50,000,001 and above As agreed

It should be noted that this is not the final cost of the audit. The ultimate fee is determined after checking the documents provided by you (but before the actual start of the audit!).

Remember that Hong Kong takes accounting and tax fraud very seriously and such violations entail serious sanctions from the local government! Therefore, it is very important to keep proper and careful accounting records in order to avoid any shortcomings or issues during the mandatory annual audit.

We conduct annual audits in accordance with the Hong Kong Financial Reporting Standards (HKFRS) and International Financial Reporting Standards (IFRS). Our auditors have vast experience and dealt with a variety of companies. They are ready to serve any client, regardless of the scale, condition, or specifics of their business. As mentioned above, we not only provide audit services but we are also ready to handle the accounting of your company and advise you on any issues related to taxation in Hong Kong.

It is actually very good to have an auditor and an accountant in the same firm. In this case, the firm is already familiar with the documentation and features of your business, so the audit will be faster and cheaper than the services provided by an accountant from one firm and an auditor from another. Moreover, no additional questions will be asked. You will not waste time communicating with different parties and will avoid delays in filing documents or their loss, which can lead to penalties. Therefore, the audit will take place as “transparently” and quickly as possible.

So, is your Hong Kong company ready for the annual audit? If you have any questions or would like to use our services, please email us at

Who is authorized to audit a company registered in Hong Kong?

In Hong Kong, the authorities take accounting seriously, regardless of whether the company operates within or outside the country. Keep all accounting records appropriately to avoid inaccurate data or problems with the current laws (an annual audit is carried out to help you comply with legal requirements). It is performed by a CPA (Certified Public Accountant) independently employed by the company. The auditor must have a confirmed certification and a special license, and it could be a company or a natural person. The results of the audit are presented at the company’s annual meeting.

What documents does the company provide to the auditor?

The audit should reflect the real state of affairs in the company. For this purpose, the following documents are submitted to the auditors:
– contracts with buyers and suppliers
– bills of lading
– invoices confirming payment
– bank statements that confirm payment by wire transfer
The company, which has an offshore status provides a wider list of documents upon the auditor’s request. The company officials and the auditor shall bear responsibility for data concealment (and can even be held criminally liable).

What are the results of an audit?

The correctness of doing business in the company is reflected in the auditor’s opinion, which can be:
– Unqualified (positive)
– Qualified (not completely positive)
– Adverse (negative)
– Going concern (unprofitable)
In addition, the auditor has the right not to provide an opinion. He writes a Disclaimer of opinion, which means that there is no information or necessary documentation to form an opinion.

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