A New Company's First Tax Return: When It Arrives, What to Prepare, How the Deadline Works

At a glance

Timing, deadlines, form numbers and penalties are as published by the IRD.

The first decision: your year end

This has to be settled long before the return arrives, because it governs every year afterwards.

The two most common choices:

Code M buys roughly three months more than code D. A year end falling between April and November is code N, which effectively gets no extension.

In other words, the moment you pick a year end you have decided how much time you get, every year, to close the books. See choosing a year end and filing deadlines and extensions.

The first accounting period can exceed 12 months

This is specific to new companies: from incorporation to the first year end may run longer than 12 months, up to a maximum of 18.

Two practical consequences:

1. A larger audit. A longer period means more work and a higher fee than in later years.

2. The HK$2 million threshold for the two-tiered rates is not pro-rated. The length of the accounting period does not change the size of the lower-rate band.

”The company has not started trading — do I still file?”

Yes.

Once a return has been issued it must be filed by the deadline, even with no income all year and no movement in the bank account. The consequences of not filing are the same as for a trading company.

If the company is expected to be inactive long term, dormant status is worth considering — but that is a status applied for under the Companies Ordinance, and the condition is no accounting transactions at all during the year.

What do you need to prepare?

1. Every record since incorporation — bank statements (all accounts), invoices, receipts, contracts, payroll records, MPF contribution records.

2. Audited financial statements. A Hong Kong limited company must have a statutory audit performed by a practising CPA, regardless of size. Unincorporated businesses (sole proprietorships, partnerships) do not need an audit but still submit accounts information.

3. A tax computation. Adjusting the audited profit to assessable profits — adding back non-deductible items and deducting allowances.

The full document list is in what to prepare for your accountant; what the auditor will additionally ask for is in what auditors ask for.

How does the process run?

Working back from the day the return arrives:

1. Receive the BIR51
2. Appoint an auditor (the earlier the better — the peak season books up)
3. Hand over complete books and documents
4. The auditor completes the audit and issues the report
5. Prepare the tax computation
6. Complete the BIR51 and file it with the audit report and computation
7. Receive the assessment and pay on time

Step 3 is the big variable — the full breakdown is in how long an audit takes.

One more thing to expect in year one: the bill looks doubled

At the first assessment you receive the assessment for the year and provisional tax for the next together.

The provisional part is not an extra charge — it is a prepayment set off the following year. But the cash flow impact is real, so it is worth setting money aside before the first return.

If this year’s profit is expected to be markedly lower, you can apply to hold it over, but you have to attach signed draft accounts covering at least 8 months. See provisional tax explained.

What happens if you file late?

The IRD can issue an estimated assessment — tax charged on its own estimate of profits, and that estimate generally will not include the expenses you would have deducted. Objecting means doing so in writing within one month of the date the notice was issued, together with a completed return.

Which means: a month to do several months of work. The consequences and remedies in full: filing a return late.

The one thing that most affects the cost

It is not which accountant you use. It is when you start keeping the books.

Keep them monthly from day one and the first filing is a matter of handing over work already done. Start sorting eighteen months of receipts only when the return arrives and both the cost and the time multiply — and incomplete records make a qualified opinion much more likely, which then follows the company for years.

Want someone keeping the books from day one and dealing with the auditor at year end? Get started, or talk to us first.

This article is general information and does not constitute tax or accounting advice. Timing, deadlines, audit requirements and penalties are governed by the Inland Revenue Ordinance, the Companies Ordinance and the IRD’s latest published guidance; a statutory audit must be performed by a Hong Kong practising CPA.