Hong Kong after 1997

On 1 July 1997, Hong Kong became a Special Administrative Region of the People's Republic of China (PRC) under the 1984 Sino-British Joint Declaration. PRC has agreed that Hong Kong will maintain its existing economic, legal and social systems for at least a further 50 years after under the Joint Declaration.

General

Under the provisions of the Business Registration Ordinance, every person carrying on any business must register his business within 1 month of the commencement of the business. Failure to do so may result in a fine of $5,000 and imprisonment for 1 year.

Every company incorporated in Hong Kong or to which Part XI of the Companies Ordinance applies is deemed to be a person carrying on business and is liable to be registered under the Business Registration Ordinance whether or not it carries on business in Hong Kong. The companies to which Part XI of the Companies Ordinance applies are overseas companies which have established a place of business in Hong Kong.

Forms of business

The principal forms of business in Hong Kong are as follows:-

Companies (public and private) incorporated in Hong Kong;

Branches of Foreign Corporations;

Joint Ventures;

Partnerships and Sole Proprietorships.

Auditing and Accounting

Audit requirements

Every company incorporated in Hong Kong is required by the Companies Ordinance to prepare each year a income statement and a balance sheet, accompanied by a director's report.

Companies are required to keep proper books of accounts which give a true and fair view of the state of the company's affairs and explain its transactions.

The auditors' report must state whether the accounts have been properly prepared in accordance with the provisions of the Companies Ordinance and whether they give a true and fair view.

A private company may dispense with many of the statutory disclosure requirements providing it complies with certain conditions, namely that:

 all its shareholders agree in writing to accepting summary accounts for that year;

it has no subsidiaries and is not a subsidiary itself; and

it is not engaged in banking or deposit taking, dealing in securities, insurance, shipping or airline business.

Auditors

Every company incorporated in Hong Kong is required to appoint independent auditors who are Certified Public Accountants (Practising) registered with the Hong Kong Institute of Certified Public Accountants (HKICPA) to practice in Hong Kong.

Unincorporated bodies are not required to be audited.

Financial Reporting Standards

The Companies Ordinance does not specify what accounting convention should be applied. Normally, the historical-cost convention is applied, but this is frequently modified by the incorporation of revaluations of property, plant and equipment, principally land and buildings.

To date, the Hong Kong Institute of Certified Public Accountants has issued 41 Hong Kong Accounting Standards (HKAS) and 8 Hong Kong Financial Reporting Standards (HKFRS).

Taxation

Companies operating in or from Hong Kong enjoy many tax advantages. Hong Kong has a simple tax system. Different types of income arising in or derived from Hong Kong are charged under the Inland Revenue Ordinance in different form. Capital gains and dividends are not taxed, and all offshore income is outside the scope of Hong Kong tax.

The fiscal year end is 31 March, but liability to Profits Tax is calculated by reference to results of the accounting period ending in that year of assessment rather than profits arising during the fiscal year.

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