Annual Return NAR1 form, and then there is the audit. Of course, don’t forget about the profit tax return. Many buzzwords just create headaches. Let us end the confusion once and for all.
Introduction
In this guide, we will help you understand all yearly recurring obligations for a Hong Kong LLC.
In legal terms, we call it to be compliant.
Who is this article for now?
This guide is for two sets of people
- current business owners of Hong Kong LLCs who want to make sure that their accountants do their job properly
- future business owners of Hong Kong LLCs who want to see how much work is required
Good news:
If you have good accountancy service, there is not much work required from you.
Bad news:
If missing details in compliance, it can mean severe penalties and court meetings for you as a business owner.
1. Annual Return NAR1, Tax Filling, etc.: An Overview.
There are two main things you need to focus on:
- annual renewal and
- profits tax return filing.
In the next section, we discuss:
- Why they are needed?
- Which deadlines need to be met?
- What do you need to do as a business owner?
- What does your accountant need to do for you?
Below, in the graphics, is an overall exemplary timeline of yearly tasks.
1. Annual Return NAR 1: Renewal Process and Requirements
1.1 What is the Annual Return NAR1/What is the Annual Renewal?
Every year, the government requires you to confirm that the initially entered business information (during incorporation) is still current.
The business information that will be asked is for example:
- company name
- company type
- business address etc.
See the screenshot below for an example of the form (called Annual Return NAR1) that needs to be filled out.
1.2. When must the Annual Return NAR1 be handed in?
The annual renewal process happens every year on the anniversary day of your company’s incorporation. The first annual renewal will occur 12 calendar months after the date of incorporation and will repeat annually on the same date thereafter. Keeping this schedule in mind is crucial to maintaining compliance and avoiding penalties.
Example:
If you incorporated your company on August, 12th, 2024, the renewal happens each year on August, 12th + 42 days which means September 24th, 2025.
On the government website, you can calculate the annual return filing date.
At Reachtop, we keep this schedule in mind for our clients, so they don’t need to worry about that. If you want to know what our complete process looks like, book a free call with us.
1.3. How to Complete Annual Renewal for a Hong Kong Company
The annual renewal process is an essential step in maintaining your company’s registration and ensuring the government has the latest information on your shareholders and directors. This includes updating the personal details of directors and shareholders, such as changes in passport details or corresponding addresses.
The key steps in the annual renewal process are:
- File the Annual Return (Form NAR1): The annual return, also known as Form NAR1, needs to be filed with the Companies Registry within 42 days of your company’s anniversary date. This form provides the government with the latest details about your company, including any changes to directors, shareholders, and registered office address.
- Review and Update Company Information: Before filing the annual return, review all the information about your company, directors, and shareholders to ensure it is accurate and up-to-date. Make any necessary changes, such as updating contact details or reporting changes in shareholding.
- Sign and Submit the Form: The annual return must be signed by a director or the company secretary. Once completed, you can submit the form to the Companies Registry, either by post or online through their e-filing system.
- Pay the Filing Fee: There is a small filing fee associated with submitting the annual return. The current fee is HK$105, which can be paid by check, bank transfer, or through the Companies Registry’s online payment system.
It’s important to complete the annual renewal process on time to avoid any penalties or fines from the government. The entire process is relatively straightforward, but if you have any questions or need assistance, your company secretary can help guide you through the steps.
2. Profits Tax Return Filing and Annual Audits
2.1 What is the Profit Tax Return?
This is to inform the tax authorities about the company’s financial details of last year.
2.2 When must the Profit Tax Return be handed in?
For newly incorporated companies, the first physical profits tax return will be issued approximately 18 months after the date of incorporation. After the first year, the company will typically receive its profits tax return by early April each year. Understanding this timeline helps ensure that your company remains compliant and that you meet all filing deadlines.
Once your annual renewal is completed, the next step is handling your profits tax return filing and annual audit.
2.3 How to Prepare for a Hong Kong Company Audit
Complete the Audit:
Hong Kong requires all companies, regardless of size, to conduct an annual audit of their financial statements. This audit must be performed by a Certified Public Accountant (CPA) with a practicing license in Hong Kong, typically through a CPA firm such as Reachtop KSHK CPA Limited.
The company is required to present its annual financial statements, along with corresponding supporting documents, to the auditor. These documents include bookkeeping records, bank statements, customer and vendor invoices, contracts, and other relevant materials. The auditor will use these to perform independent auditing procedures, ensuring that the financial statements are accurate and compliant with Hong Kong’s regulatory standards.
This process can appear complicated, which is why it’s crucial to engage a CPA firm that not only holds the necessary licenses but also has significant experience and a deep understanding of your business operations and industry. A well-chosen CPA firm can streamline the audit process, making it smoother and more efficient, while also providing valuable insights into your financial practices.
2.4 Filing Your Hong Kong Profits Tax Return
After the audit is completed, the next step is filing your profits tax return.
The audited financial statements are a critical part of your tax return, as they provide the necessary documentation for the Hong Kong Inland Revenue Department (IRD). Accurate and timely filing of your profits tax return is essential for maintaining compliance and avoiding penalties.
By treating the audit and tax return filing as a single, integrated process, you can streamline your company’s compliance efforts. This approach not only fulfills legal obligations but also enhances your business’s credibility and financial transparency.
3. Why Choose Hong Kong for Company Incorporation?
Despite the paperwork, Hong Kong is a top choice for over 1.4 million companies. Let me tell you why:
3.1 Reputation:
Hong Kong is a prestigious global business hub. It’s not just another tax haven—it’s the real deal, opening doors you wouldn’t imagine.
3.2 Solid Documentation:
The rigorous renewal and audit processes mean you’re always in line with KYC, anti-money laundering, and tax standards. For digital nomads, this is key to building trust worldwide.
3.3 Strategic Location and Business Environment:
Located right in the heart of Asia, Hong Kong gives you easy access to massive markets, including China. Plus, with low taxes and a friendly business climate, it’s perfect for entrepreneurs looking to go global.
Also, read about the
- differences between a Hong Kong company and a US LLC for a digital nomad or
- differences between a Hong Kong company and a Singapore LLC.
3. The Common Consequences of Non-Compliance
Before we dive into the FAQs, let’s talk about what happens if you don’t keep up with compliance. I’ve seen many cases where companies faced penalties for late filings, and some even got court summons. Worse yet, offshore claims can be rejected if documentation isn’t up to par during audits. Keeping everything in order is key to avoid these headaches.
4. Conclusion
Keeping your Hong Kong company compliant takes some effort, but the rewards are worth it. You’ll gain prestige, compliance benefits, and strategic advantages. If you need personalized advice, feel free to book a call. I’d love to share more insights from my experiences with digital nomad clients. Until next time!
5. Frequently Asked Questions
1 – How long does it take to set up a Hong Kong company?
Less than a day! The incorporation process is super efficient.
2 – What’s needed for annual renewal?
Just update the government with current shareholder and director info. Your company secretary will handle it.
3 – Do all Hong Kong companies need an audit?
Yes, every company must have an annual audit for their profits tax return.
4 – What documents are needed for the audit?
Bank statements, invoices, and other accounting records are a must. Your CPA will guide you through it.
5 – Why is Hong Kong a preferred location for incorporation?
It offers a prestigious business environment, strategic location, and solid documentation, boosting global credibility.
6 – Can a CPA make the audit process easier?
Absolutely! A skilled CPA can streamline everything, making it a breeze. And in fact, the CPA with a practicing license is the only eligible personnel who can conduct the auditing for the Hong Kong company.
7 – What are the benefits of solid documentation?
Solid documentation, such as tax reports and audited financial statements, is increasingly important for digital nomads in the current KYC and AML climate. This documentation helps maintain strong relationships with payment gateways, banks, and government authorities in your home country.
8 – What is the annual fee for NAR1?
The annual fee is HK$105 (around $15) for private and limited companies.
This will be most probably the company form you have. For public companies, it is HK$140.
9 – What is HK annual return?
The HK annual return is for the Hong Kong tax authorities to make sure that your business information is still the same or that any changes are needed. You fill out the NAR1 form for this purpose.
10 – What is NAR1?
The NAR1 is a form.
It is filled out yearly for a Hong Kong company to ensure that all business information is up-to-date
11 – How to get NAR1?
You can download the NAR1 form from the government website.
12 – How to file an annual return in Hong Kong?
Usually, your secretary will either send it via post or digitally to the IRD.
13 – What is the purpose of NAR1?
The purpose is to update any information for your Hong Kong company that may have changed so that the tax authorities are informed.
14 – When to file an annual return?
The annual return NAR1 form is filed every year on the anniversary date of the incorporation of your Hong Kong company.
