How To Select The Right Financial Year End For Your New Company | Article – HSBC VisionGo

Hong Kong-registered businesses have the right to choose their financial year-end. Find out all the details you must consider to make the right choice

Legal  ·    ·  3 mins read

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In Hong Kong, businesses have the freedom of defining their financial year-ends. The business year-end needs to be fixed as it affects other compliance requirements such as accounting and preparation of financial statements. In fact, all the financial record keeping is done as per your company’s financial year-end.  

First Financial Year of Companies in Hong Kong

In Hong Kong, your business’s fiscal year start from the day it is incorporated. However, the company directors don’t have to follow this date; they can decide to follow some other date if they so desire.  

If a new company doesn’t pick a financial year-end date in accordance with the new Companies Ordinance, it will automatically be fixed as the last day of the month of the company’s incorporation’s first anniversary. For a new company, the first financial year-end should be within 18 months of incorporation.  

How to choose a financial year-end date? 

The most significant consideration for a company while choosing a year-end is financial reporting, taxation and bookkeeping. Companies in Hong Kong can use any day between 1 April to 30 November as their year-end. Here are some factors you should consider to get maximum benefits for your business.   

Choose between the two most popular year-end options – 31 December or 31 March

Most Hong Kong companies – in fact, most companies across the world – follow one of these two dates as financial year-ends – 31 December is the calendar year-end, and 31 March is internationally recognized as the business year-end and is also used as a financial year end by the Hong Kong government.  

By choosing one of these dates, you align your business to the most widely used system and also become eligible for extensions which the Inland Revenue Department offers to those who follow these two financial year-ends.

Ease of Accounting 

A financial year-end that aligns with the month-end or other similar industry best practices makes accounting easier. You should consider 

Picking the month-end 

Financial statements follow calendar months, so picking the last day of the month keeps the accounting streamlined and reduced any misunderstandings while communicating to other companies. 

Aligning the FYE to your holding company/ subsidiaries

Following the same FYE as your related companies such as holding company or subsidiary company makes sense as it brings the entire accounting process under one umbrella. 

Tax and audit perspective

You need to also understand how your choice could affect your tax and other regulatory obligations. The FYE plays a role in a company’s annual profits tax return deadline. 

A new company in Hong Kong receives its first Profits Tax Return from the IRD within 18 months of its incorporation (after that, the returns are filed yearly in early April). Once you receive the Profits Tax Return, you have three months to file it. 

This deadline for filing your returns depends on whether your company has nominated a tax representative and on your business’s chosen financial year-end. If your company doesn’t have a tax representative, you will have to file Profits Tax Return within one month from the date of issue of the return and are not eligible to get any deadline extensions. 

Here, it is also advisable to check whether the FYE and the resultant profits tax return deadline will come at a difficult time in terms of business operations (such as peak season when the staff is already overworked) or cash flow (during the lean season which could put extra pressure on the business financials)  

Here are the extended filing dates for the different FYE : 

1. 

FYE: From 1 April to 30 November (Accounting Date Code “N”)

Standard Issue Date: April's first working day in the following year of assessment

Standard Filing Date: 2 May 

Profits Tax Return Extended Due Date: No extension will be granted (Typically end of April)

2. 

FYE: From 1 December to 31 December (Accounting Date Code “D”)

Standard Issue Date: April's first working day in the following year of assessment

Standard Filing Date: 2 May/15 August 

Profits Tax Return Extended Due Date: Extension to 30 September

3.

FYE: From 1 January to 31 March (Accounting Date Code “M”)

Standard Issue Date: April's first working day in the following year of assessment

Standard Filing Date: 2 May/15 November

Profits Tax Return Extended Due Date: Extension to 30 November

Final Thoughts

It is excellent that businesses in Hong Kong have the flexibility to choose their financial year-end. However, you have to think carefully to make the most of this choice. For most businesses, we would recommend picking either the calendar year-end of 31 December or the international fiscal year-end of 31 March. However, if you want to explore other options and feel that they would suit your business better, then a quick chat with one of our experienced accountants will help you pick a date with confidence. 

At Osome, along with guiding you to make the right choice, we also help companies deal with the technicalities and paperwork of changing your company's financial year-end. Talk to us to know more! 

 

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