Forms, which is which?

Michael MicheliniBlog, Corporate, Taxes, Upkeep0 Comments

Hong Kong business is pretty straight forward, but once you get the company going, you will get some various forms in the mail and not be sure how to handle them. Today we’ll go through each of the normal forms you will receive, what they mean, and what you need to do.

Of course we’d love to be your company secretary to help you with all of this, and consider us for the task! We’ll take care of all these forms and processes for you so you can focus on your business.

Annual Return – NAR1

The regular form is the annual return. This is a required yearly form that has you confirm your company details are up to date.

Such things will need to be confirmed:

  • Shareholders
  • Directors
  • Company Address
  • Outstanding Shares

This is your main chance each year to update your company documents for who is the owner. A company secretary normally includes this in their yearly package. On top of filing it, throughout the year as you add and remove business partners, this should be kept track of and then when the Annual return is filed it will reflect the latest ownership structure in the company.

The fee is very nominal at 110 HKD, or about 15 US dollars. Most of the time the company secretary covers the cost as part of their package (as we do in ours).

Business Registration Certificate (BRC)

You need to keep your company license up to date each year. The BRC is the general “business license” to do business with your Hong Kong company. You may need other business licenses such as food and beverage, financial, importing, and others which each have their own fees and renewal costs. A lot of clients we work with do not need any other license except this basic on.

It is important to pay this each year, as late fees and penalties pile up. It is the biggest cost for yearly upkeep, with a yearly fee of 2,250 HKD – about 300 USD. If you have your company secretary or agency do it for you, they will add on top a small admin fee to process it. Normally worth having them do it just so that everything is tracked and kept together at one agency.

When you apply for banks, merchant accounts, or other significant business deals, they will ask for your BRC. You can see the expiration right on the page, and the banker will want to make sure you send them the newest most up to date one.

Also, if you look on the walls at local businesses, you will see the BRC proudly placed. Most of the time check near or behind the cashier. They are required to have one at each place of business, to show that they have their company in good standing with the Hong Kong government. Restaurants and others will have even more licenses.

If you’re doing an online business, no need to show it on your website, simply present it to business partners when they ask, during the application process.

Profit Tax Return

This is the most important one. This is when the IRD (Internal Revenue Department) asks the company to complete their accounting and submit it to them with their tax payment.

When you receive this, it will give you 60 days from the date it was issued to prepare your books. Hopefully you have been keeping things up to date and can present this to your Hong Kong CPA to process.

To complete the profit tax return, you need to do your audit. This is required to be done by a licensed Hong Kong CPA, and they will sign off that the books are done correctly and put their license on the line.

Then, they will help complete the form and you will sign off on the amount of tax that is due. You submit this together with your books to the IRD in Wan Chai and wait for them to process everything.

When will you get the profit tax return? This is a hot question, and the standard answer is 18 months after the company has been registered. So it is best practice to simply operate your business as usual, keep your books clean and in order, with as much supporting documentation as possible, and be patient for the profit tax return to come.

A lot of times your company secretary is either a CPA themselves or has CPA partners. But you are not obligated to use their CPA, you are free to “shop around” get quotations for an audit.

So now for the most common question, how much does an audit cost? The profit tax return itself doesn’t have a fee, but the work behind doing the auditor report, checking the books, making sure the company has entered all the transactions into the books, this is a complicated and involved process. Most CPAs charge by the amount of transactions. We also recommend you keep “cloud computing” with such tools as Quickbooks, Xero, Wave, or others.

That way, you can easily add a CPA to the books, let them review, give you a quotation, and you can decide to use their service. If you don’t accept, you can remove them from the account. In the past, this would be more complicated as you had to mail them papers, or go to their office and meet them. By the time you invested that much time getting them up to speed, you are too tired to shop around and just let them keep all the documents and complete the audit.

Employer’s Return (Salaries Tax)

Now for some other documents, titled “Employer’s Return of Remuneration and Pensions”, form 6D1. This connects to form IR56B which asks the company to declare to the Hong Kong IRD the amount of employees you paid. The form is also called “Salaries Tax”.

It also includes those you paid a pension to. It is for 1 year, from the dates that it asks on the form. You have one month to complete it and send it back. It must be sent back in the original form, not a scanned / printed copy. And it has to be signed as an original signature.

Census Bureau Surveys

When you first open the company, your information will go to various HK government offices. One of them is the Census bureau. It will ask you if you have employees, if yes, how many. Then it will ask a bit about what your company does. Last part, most important for them, is if you are hiring people.

If you are hiring, they can try to see if there are people in the labor database to apply. Just like any government, they want to get jobs to their local Hong Kong people, can’t blame them!

In Summary (TLDR)

Here’s the quick highlight from the various forms.

  • AR1 – Annual Return – confirming owners, address, shares. Cost 110HKD.
  • BRC – Business Registration Certificate – yearly required license to do business with a HK limited. Cost 2250 HKD.
  • Profit Tax Return – The IRD is now asking you to prepare your books, complete your audit, and pay your taxes. You have 60 days from when it’s issued to finish this.
  • Salaries Tax – Do you have staff? Paying pension? If yes, declare it here.
  • Other surveys, correspondence – Keep on top of them!

I hope this gives you a bit more confidence on doing business in Hong Kong! So many people forward me emails from various agencies and are confused at the standard copy/paste templates they get. And it looks scary, warning them of late fees and penalties if they are late or do something incorrect.

Stay calm, and follow the directions here. Or, just transfer your secretary over to us.

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