This is a guide to the common compliance mistakes for businesses operating in Hong Kong.
When you run a company, it is important that you understand the different requirements to avoid any misunderstandings or mistakes. We have listed four of the common mistakes companies may make, which are:
- Company registration vs trademark registration
- Annual return vs profits tax return
- Annual statutory audits
- Roles and responsibilities of directors and shareholders
Let’s start with the first mistake.
1. Company registration vs trademark registration
A common confusion for companies in Hong Kong is company registration and trademark registration; they are regulated by different laws and government departments. The authority responsible for company registration is the Companies Registry, while trademarks are registered through the Intellectual Property Department.
Once you register your company with the Companies Registry, you still do not have the exclusive right to use the company name as a trademark. You must apply to register your trademark with the Trade Mark Registry to obtain trademark protection.
The Trade Marks Ordinance protects trademarks in Hong Kong.
How to register your trademark?
Trademark registration can be made online or offline with the Trade Marks Registry, Intellectual Property Department (IPD).
To apply, you will need the following:
- Trademark registration application form (Form T2)
- Personal details of the applicant
- Specifications of the goods or services in respect of which it is sought to trademark registration
- Other requested documents
Once you have submitted your application, it will be checked to ensure it meets the IPD’s requirements. If there are no objections to your application, it will be published in the Hong Kong Intellectual Property Journal for public inspection, which can be opposed by a third party within three months.
If there are no objections, the Registrar of Trade Marks will issue a registration certificate for your trademark.
2. Annual return vs profits tax return
Another mistake companies may make is confusing the annual return with the profits tax return. In fact, the annual return does not concern the taxes of the company.
The annual return contains information, while the profits tax return is used for filing the company’s taxes.
An annual return (Form NAR1) is a form that companies must file with the Companies Registry every year, which covers important information about your company.
The submission deadline for the annual return is within 42 days after the company’s incorporation anniversary.
The annual return consists of the following particulars:
- Company name
- Registered office address
- Type of company
- Period covered by financial statements delivered
- Share capital (if any)
- Details of the directors
- Details of the company secretary
- Particulars of member(s) of a company having a share capital
- Company records
Even if the company information has not changed, you are still required to submit Form NAR1 and pay a fee.
A fine will be imposed if the annual return is filed late.
The fines are
|Date of delivery||Fine (HKD)|
|More than 42 days but less than three months since the company’ incorporation||870|
|More than tree months but less than six months since the company’s incorporation||1,740|
|More than six months but less than nine months since the company’s incorporation||2,610|
|More than nine months since the company’s incorporation||3,480|
The annual return can be submitted through hard copy by downloading the Form NAR1 and deliver it by post or in-person to the Companies Registry. It can also be submitted by electronic form through the Companies Registry e-filling service.
Profits tax return
The profit tax return is for companies to report all the profit companies, partnerships, or non-residents have made within Hong Kong.
The issuance of profits tax returns is not fixed, and the deadline for filing the return depends on the financial year-end of the company.
For newly established businesses, the IRD will issue the profits tax return 18 months after commencing business.
The profits tax return can be filed on Hong Kong’s e-tax website.
There are three types of profits tax returns, which are:
- Profits tax return – Corporations (BIR51)
- Profits tax return – Persons other than corporations (BIR52)
- Profits tax return – In respect of non-resident persons (BIR54)
Corporations need to submit the BIR51 form together with audited financial statements, while small corporations and dormant companies are required to submit form BIR51 with other supplementary forms.
3. Annual statutory audit is a legal requirement
According to the new Hong Kong Companies Ordinance, all incorporated companies are required to conduct a statutory audit, and limited companies must appoint Certified Public Accountants (CPA) to audit the company’s records.
The auditors will also comment on the statements about whether the information is accurate and complies with the Hong Kong Financial Reporting Standards or the SME-FRE for Small- and Medium-sized Enterprises.
Statements that need to be audited are:
- Bank statements
- Expenditure receipts
- Financial statements
- Management accounts
- Relevant accounting documents
- Balance sheet
- Ledger of business transactions
- Income statement
Find out more about the audit requirements in our Introduction to Accounting guide.
4. Director vs shareholder
Shareholders are the owner of the company, control the management and receive profits, while shareholders hire directors to run the daily operations of the company.
The roles and responsibilities of a Hong Kong company director are:
- Administer, control and direct the company
- Ensure that the company is legally compliant
- Manage the company in the interest of the shareholders
- Represent the company’s interests
- Execute resolutions passed at shareholder meetings
The shareholders’ roles and responsibilities are:
- Appoint and remove company officers
- Attend, participate and vote in company meetings
- Decide on the director’s salary
- Make decisions on issues directors cannot make
- Monitor and approve the company’s financial statements
- Monitor the company’s performance
Both positions have very important roles in operating a company, and the individual appointed to carry out these roles must ensure that they have a good understanding of their responsibilities to avoid making any mistakes within the company.
Listed above are some of the common compliance mistakes businesses in Hong Kong make. These mistakes should be avoided as they may affect the operations of the company or may face penalties. If you need advice, do not hesitate to contact Acclime.
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