Understanding Tax, Audit, and Accounting Standards in Hong Kong

Kristina Coluccia
Jun 5
3 min read

Hong Kong continues to be one of Asia’s most dynamic and attractive markets for international business. With its pro-business environment, simple tax system, and adherence to international financial reporting standards, Hong Kong provides a stable and transparent framework for businesses of all sizes. For companies planning to establish or expand their presence in this jurisdiction, it is essential to understand the local tax, audit, and accounting standards. This blog post offers a comprehensive overview of these critical aspects of doing business in Hong Kong.

Taxation in Hong Kong

Territorial Source Principle of Taxation Hong Kong operates on a territorial basis of taxation, meaning that only profits which arise in or are derived from Hong Kong are subject to tax. Profits sourced outside Hong Kong are exempt, even if they are remitted into the territory.

Key Tax Types

Profits Tax: Companies are subject to a two-tiered profits tax rate — 8.25% on the first HKD 2 million of assessable profits and 16.5% on any excess for corporations. Unincorporated businesses are taxed at 7.5% and 15%, respectively.
Salaries Tax: Individuals are taxed progressively at rates from 2% to 17%, or at a standard rate of 15%, whichever is lower.
Property Tax: Charged at 15% on the net assessable value of a property.

There is no capital gains tax, no VAT/GST, and no withholding tax on dividends and interest — a hallmark of Hong Kong’s tax efficiency.

Tax Filing and Compliance Companies must file annual tax returns with the Inland Revenue Department (IRD). Profits tax returns are typically issued on April 1 each year, with deadlines varying based on the company’s financial year-end.

Audit Requirements

Mandatory Audit of Financial Statements All companies incorporated in Hong Kong under the Companies Ordinance are required to have their financial statements audited annually by a Hong Kong Certified Public Accountant (CPA). This applies even to dormant companies unless officially exempted.

Filing Requirements While private companies are not obligated to file audited accounts with the Companies Registry annually, they must submit them to the IRD along with their profits tax returns. Public companies and larger private companies, on the other hand, have more stringent disclosure and filing obligations.

Accounting Standards

Adoption of Hong Kong Financial Reporting Standards (HKFRS) Hong Kong has adopted the Hong Kong Financial Reporting Standards (HKFRS), which are nearly identical to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). This alignment makes Hong Kong a preferred jurisdiction for multinational corporations seeking consistency in global financial reporting.

Small and Medium-Sized Entity (SME) Reporting Framework To reduce the burden on smaller businesses, Hong Kong has also introduced simplified reporting standards under the HKFRS for Private Entities. These are applicable to companies that are not publicly accountable and publish general-purpose financial statements for external users.

Regulatory Oversight

The Financial Reporting Council (FRC) is the independent regulator overseeing auditors of public interest entities and promoting high-quality financial reporting. The Hong Kong Institute of Certified Public Accountants (HKICPA) plays a critical role in setting accounting and auditing standards, as well as licensing CPAs.

How Woodburn Can Support Your Compliance in Hong Kong

Navigating Hong Kong’s tax, audit, and accounting landscape can be complex, particularly for foreign-invested enterprises and expanding multinational companies. At Woodburn Accountants & Advisors, we specialize in supporting international clients with market entry, corporate compliance, and financial reporting in Hong Kong. Our team of experts ensures that your company remains fully compliant with local regulations while optimizing for tax efficiency and financial transparency.

Whether you are launching a new entity, restructuring operations, or simply seeking clarity on your obligations, Woodburn offers a full suite of tailored solutions.

Woodburn Accountants & Advisors is one of China and Hong Kong’s most trusted business setup advisory firms.

Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.