Accounting Records Retention: Hong Kong's Seven-Year Rule

At a glance

The retention periods, penalties and electronic-record requirements are as set out in the Inland Revenue Ordinance and the Companies Ordinance and most recently published by the IRD.

Seven years from which day?

This is where people most often miscount — and miscounting means a whole year short.

On the tax side — seven years from the day the transaction was completed. An invoice from March 2020 has to be kept until March 2027.

On the company law side — seven years from the end of the financial year to which the last entry in the records relates. With a 31 December year end, the 2020 records have to be kept until the end of 2027.

Two methods, two different answers.

The practical approach: keep records in batches by financial year, counting seven years from the year end. That covers both, and saves tracking a different expiry date for every receipt.

What has to be kept?

The scope is wider than most people assume. It is not just “invoices and receipts”.

Income — sales invoices, receipts, contracts, orders, delivery records

Expenditure — supplier invoices, receipts, proof of payment, leases

Banking — statements for every account, pay-in slips, cheque stubs

People — payroll records, MPF contribution records, employment contracts

Assets — invoices for fixed asset purchases, depreciation schedules

Other — stocktake records, supporting documents for the director’s current account, evidence for an offshore claim

If you have an offshore claim, that last batch needs particular care — those contracts, emails and travel records are your only evidence, and the IRD may only ask about them years later.

Do electronic copies count?

Generally yes, subject to conditions.

In practice they have to be:

• Retrievable at any time — findable, openable
• Printable — you can produce a copy if the IRD asks
• Complete and accurate — not half a page, not so blurred the amount cannot be read
• Backed up — if one computer failing loses everything, they were not “kept”

Worth noting: online bank statements are usually only downloadable for a limited period. Plenty of owners assume “the bank has the records, I don’t need my own copy”, then find in year five that they can no longer be downloaded. Downloading once a year and storing them separately is the simplest step and the one fewest people take.

What happens if you don’t keep them?

Two layers, and the second is far more expensive.

Layer one — the direct penalty. Failing to keep sufficient records under section 51C of the Inland Revenue Ordinance carries a fine of up to HK$100,000. That is a standalone offence, unrelated to whether you under-reported income.

Layer two — the burden of proof. This is the real cost.

When the IRD questions an item of income or a deduction, the burden of proof is on you. No receipt means no evidence; no evidence means the deduction is disallowed and the income is assessed on the IRD’s estimate.

Which is to say: poor record-keeping at worst does not cost you a HK$100,000 fine — it costs you a whole year of deductible expenses that will not stand up, plus additional tax on top.

The company has closed — can they be thrown away?

No.

After deregistration or liquidation, the duty to keep records does not end immediately — the statutory period still applies. See how long records have to be kept after a company closes.

This is the step most commonly overlooked when closing: everything else is dealt with, and then a few boxes of documents go in the bin. People genuinely do get asked years later and have nothing to produce.

How to do it? Three habits are enough

One: file monthly, not annually. Each month, put that month’s bank statements, invoices and receipts into one folder (electronic or physical, either works). Then there are no boxes to dig through at year end.

Two: download the bank records once a year. Do not rely on the bank’s online records persisting.

Three: digitise, plus one backup. Photograph or scan to the cloud, with one offline backup. Those two together are far more reliable than a box of paper.

Do all three and handing things to your accountant gets much faster too — because what you hand over is already sorted, not a bag of receipts.

The cost of this is in the day-to-day, not at year end

Record keeping is not, in the end, a technical problem. It is a habit problem. Ten minutes a month filing, against two days at year end going through receipts — the total time is not close.

And the real difference shows up three years later. The IRD writes asking about an old entry: someone with a system deals with it in half a day; someone without may simply never find it.

Want someone to set up the filing process and keep it running month to month? Talk to us, or get started.

This is general information and does not constitute legal or tax advice. The retention periods, scope, penalties and electronic-record requirements are as set out in the Inland Revenue Ordinance and the Companies Ordinance and most recently published by the IRD.