How To Choose Hong Kong Financial Year End

As far as calendar days go, we’re used to the year coming to an end on December 31st. On the other hand, a company’s financial year end may finish at a different time.

There are several factors that might influence a company’s fiscal year in Hong Kong. For instance, November and December are normally the busiest months, so accounting could be stressful at these times. Companies in the service sector may have busy times in the summer, and choose to end the fiscal year in September or October instead.

So, what exactly is a financial year end? What are the implications and how can you choose the right year end date for your Hong Kong company?

An overview of Hong Kong’s financial year end

What is a financial year?

A Hong Kong fiscal year, also known as a financial year, is a 12-month period used for accounting purposes by a firm. Simply said, businesses will calculate earnings and losses and generate financial reports based on the fiscal year.

Under the new Companies Ordinance, the first financial year of one company would begin on the first day of its accounting reference period and close on the last day of that period.

Note

The accounting reference period means the reporting period covered by the financial statements.

Benefits of choosing the right financial year end

Hong Kong’s financial year end dates have a strong linkage with annual compliance requirements, filing, and accounting; thus, choosing a suitable FYE can considerably influence the company’s operation, along with its tax benefits.

Also, a wise choice of financial year end date can bring you various benefits, including:

• Avoiding busy seasons

It may be easier and more efficient for your accounting department if the fiscal year end is planned during a less busy month.

Furthermore, scheduling your fiscal year end after the peak season helps you establish financial records that correctly reflect the company’s financial status during an average quarter.

For instance, company A determined its FYE date to fall on 30 June 2018.

According to Hong Kong reporting rules, the standard filing date for Company A shall be no later than 2 May 2019, and there is no extension allowed for the profits tax return in such a case.

As a result, around August 2019, Company A will be required to pay profits tax. If this payment deadline falls during the peak season or at a period when the company is experiencing cash flow issues, it may increase the company’s accounting burden. This is why choosing an appropriate fiscal year in Hong Kong is critical.

• Adapting to your business cycle

If your business generates the majority of revenue during a certain month of the year and pays expenses at a different time, you would likely benefit from choosing the right financial year end.

Let’s say your company makes significant profits in July, but you do not purchase inventory until December, a traditional calendar year end may not accurately reflect your company’s financial situation. The use of a financial year that ends May 31 would allow your company to record its highest revenue and costs in the same tax year.

How to determine the right financial year in Hong Kong

Below are 3 main factors that should be taken into account when choosing your Hong Kong financial year.

Accounting factor

Choosing the right FYE may result in a less complicated accounting process for your business.

Suppose you incorporate a business in Hong Kong. By consolidating the FYE date with subsidiary companies, accountants on both sides can effectively complete the financial statements. The auditing process is also easier to be done. As a result, your company can save a large amount of money incurred from accounting and auditing tasks.

Assume you establish a holding company in Hong Kong, by combining the FYE date with subsidiary firms, accountants on both sides can successfully complete the financial accounts. The auditing procedure can be simplified and your organization may save a significant amount of money on accounting and auditing activities.

Taxation factor

Before filing profit tax returns, you must report your company’s FYE. The fiscal year end will affect the date for your Hong Kong company’s earnings tax return.

The Profits Tax return, as well as any supplementary forms, and other forms (i.e. the IR1478 and IR1479), should generally be filed within one month of the date of issuance. However, extended due dates might be available for tax representatives.

If your financial year end is between:

1 April and 30 November (Accounting Date Code “N”)

• The standard filing date is 3 May of the following year.
• E-filings are due one month after normal filing deadlines.
• Normally, there is no further extension for the due date unless the IRD allows it.

1 December and 31 December (Accounting Date Code “D”)

• The standard filing date is 3 May of the following year.
• The due date for profits tax return filing is extended to 15 August of the following year (15 September for electronic filing)

1 January and 31 March (Accounting Date Code “M”)

• The standard filing date is 3 May of the same year.
• The due date for profits tax return filing is extended to 15 November of the same year (15 December for electronic filing)

Please be aware that the IRD may exercise flexibility during certain circumstances by extending tax filing due dates to accommodate businesses.

For instance, taxpayers with accounting dates falling between 1 January 2023 and 31 March 2023 (Accounting date code “M”) with tax losses for the year may submit their filings no later than 31 January 2024, applicable for both paper and online methods.

Therefore, it is advisable to regularly check for updates from the authority and stay informed about any changes that may affect your tax obligations.

Business nature factor

To match the business cycle, most companies choose a fiscal year end as the conclusion of any quarter, such as March 31, 30 September, or December 31.

Businesses may experience some fluctuations in revenue and activity until the end of the quarter. For example, a retail firm may choose 31 December as its FYE date due to large sales during the holiday period season. A company whose primary activity is in the summer, on the other hand, is likely to choose a fiscal year end date of September 30.

Can a Hong Kong company change its financial year end?

The answer is YES. A Hong Kong company is free to set its own fiscal year end date and can amend it, providing that it has good reasons.

Below are some reasons why you may choose to modify your Hong Kong company’s current fiscal year end:

• You’ve just started your company in Hong Kong and have missed the chance to pick your company’s FYE.
• You need an extension for an annual profit tax return to match your business’s peak season.
• Your company is a subsidiary and wishes to consolidate separate FYE with the parent company in order to simplify the accounting procedure.

While the Hong Kong government allows the change of financial year end, there are several things to remember before making changes.

For the initial modification, you might have to get the shareholders’ consent. If your company is limited by guarantee, you must notify the Companies Registries within 15 days.

If your company’s financial year end date is changed for the first time, it cannot be changed again for at least five years unless there are compelling grounds for the change. Moreover, the first financial year after the change must not be prolonged to more than 18 months.

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Conclusion

Before deciding on your ideal financial year end in Hong Kong, there are a few things to think about. Accounting, tax, and business aspects are the most important ones. You may alter your firm’s FYE as long as you have solid justification

Don’t hesitate to get in touch with our friendly consultant via service@bbcincorp.com if you need more specific guidance on picking the best financial year end for your Hong Kong business.