Zero Declaration Requires Audit Report low as $3000: A Must-Know Tax Compliance Guide for Hong Kong Businesses
When running a company in Hong Kong with no business activity or revenue in a financial year, you may need to file a zero declaration. However, even with zero revenue, the Hong Kong Inland Revenue Department (IRD) typically requires an audit report. This article explains what zero declaration means, the legal requirements under Hong Kong regulations, how to prepare it, and how businesses can complete an audit report for as low as HK$3,000. Whether you’re a startup or a small business, this guide will help you stay compliant and avoid penalties.
What Is a Zero Declaration?
In Hong Kong, a zero declaration occurs when a company has no taxable profits or business activities in a financial year, resulting in a Profits Tax Return (PTR) showing zero income. This is common for newly established companies yet to commence operations or businesses temporarily paused. Despite its simplicity, the IRD imposes specific obligations that companies must follow.
For more foundational knowledge, check out our internal article: Introduction to Hong Kong Taxation.
Does a Zero Declaration Require an Audit Report in Hong Kong?
Under Section 622 of the Hong Kong Companies Ordinance, all locally incorporated limited companies (except dormant ones) must conduct a statutory audit annually, certified by a Hong Kong Certified Public Accountant (CPA). This rule applies even when filing a zero declaration. Here are key scenarios:
- General Limited Companies
Since April 1, 2023, companies with no revenue must still submit audited financial statements with their declaration. This change eliminated exemptions for small companies with annual revenue below HK$2 million. - Newly Incorporated Companies
New businesses receive their first PTR within 18 months of incorporation. Even if operations haven’t started, an audited zero declaration is required. - Exceptions
- Dormant Companies: Companies registered as dormant with the Companies Registry are exempt from audit requirements. Learn more at the Hong Kong Companies Registry.
- Overseas Branches: If the parent company’s jurisdiction doesn’t mandate audits, unaudited statements may suffice with additional proof.
Why Is an Audit Report Required?
Even with no income, the IRD mandates audit reports for these reasons:
- Transparency: Ensures no hidden profits or tax evasion.
- Legal Compliance: Per Section 429 of the Companies Ordinance, all Hong Kong limited companies must file audited statements.
- Verification: Continuous zero declarations may trigger scrutiny, and an audit report serves as evidence.
How to Complete a Zero Declaration Audit Report for HK$3,000?
Compliance doesn’t have to be expensive. Here’s how small businesses can manage this for as low as HK$3,000:
- Hire a Certified Public Accountant
Engage a CPA recognized by the Hong Kong Institute of Certified Public Accountants (HKICPA). Many small firms offer affordable services for zero declaration audits, typically charging HK$3,000 to HK$5,000 based on complexity. Visit the HKICPA website. - Prepare Essential Documents
Submit a balance sheet, profit and loss statement, and bank statements. Simple records can minimize audit costs. - File on Time
PTRs are issued annually on April 1, with a one-month deadline. Companies ending their financial year on December 31 can extend filing to November 15.
Common Mistakes to Avoid
- Assuming No Audit Is Needed: Many believe zero revenue waives the audit requirement—this is incorrect.
- Late Submission: Missing deadlines incurs a minimum HK$1,200 fine, with severe cases leading to court summons.
- Prolonged Zero Declarations: Extended inactivity may raise red flags; consider dormant status instead.
Conclusion
Filing a zero declaration in Hong Kong doesn’t exempt businesses from submitting an audited report, as mandated by the Companies Ordinance. Fortunately, for straightforward cases, small firms can complete this for as low as HK$3,000 by working with a CPA and preparing basic documents. Stay proactive to avoid penalties and ensure compliance. For more details, visit the Hong Kong IRD website.
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