If you've just set up a Hong Kong company, you probably know about the annual return and business registration renewal. What catches most founders off guard is the statutory audit — and how much it costs if you're not prepared.

Every Hong Kong incorporated company must have its accounts audited annually by an HKICPA-registered CPA. There is no small company exemption and no revenue threshold. Even a company with zero sales still needs an audit (unless it's formally dormant with Form ND2A filed).

This guide breaks down the audit and tax filing process for 2026, with actual deadlines, rates, costs, and the mistakes that inflate your bill.

The Legal Basis: Why Audit Is Mandatory

Two laws drive the requirement:

• Companies Ordinance (Cap. 622), sections 405-406 — every company must appoint an auditor and have its annual financial statements audited. The auditor's report must be presented to shareholders at the AGM.
• Inland Revenue Ordinance (Cap. 112), section 51C — every business must keep sufficient records of income and expenditure for at least 7 years.

"Simplified reporting" exists for small private companies meeting 2 of 3 criteria (revenue ≤ HK$100M, total assets ≤ HK$100M, ≤100 employees), but this only simplifies the financial statement format. It does not remove the audit requirement. The only exception is dormant companies with zero transactions and a filed Form ND2A.

Here's the catch: even if you meet the small company criteria, if your Articles of Association require an audit or shareholders pass a special resolution demanding one, you still need a full audit.

Profits Tax Rates for 2025/26

Hong Kong operates a two-tiered profits tax system for corporations:

• First HK$2,000,000 of assessable profits — 8.25%
• Profits above HK$2,000,000 — 16.5%

For unincorporated businesses (sole proprietorships, partnerships), the rates are 7.5% and 15% respectively.

Only one entity in a connected group can benefit from the lower first-tier rate. If you run multiple companies, you need to nominate which one uses the 8.25% rate — the rest pay 16.5% on all profits.

For 2025/26, the government also offers a one-time tax reduction of 100%, capped at HK$3,000 per case. This is applied automatically — no application needed.

If your company carries out qualifying R&D work, you can claim enhanced deductions under section 16B IRO: 300% for payments to approved Hong Kong research institutions, or 200% for in-house R&D expenditure. Most tech companies leave this money on the table simply because they don't track R&D expenses separately.

2026 Filing Deadlines You Can't Miss

The IRD issues Profits Tax Returns (BIR51) on April 1 each year. Deadlines depend on your accounting year-end and whether you've appointed a tax representative:

• N code (year-end Apr 1 – Nov 30): May 4, 2026 (e-file: June 4, 2026)
• D code (year-end Dec 31): August 17, 2026 (e-file: September 17, 2026)
• M code with profit (year-end Jan 1 – Mar 31): November 16, 2026 (e-file: December 16, 2026)
• M code with loss: February 1, 2027
• No tax representative: May 4, 2026 (one month from issue date)

New companies get their first Profits Tax Return roughly 18 months after incorporation, with 3 months to file from the issue date.

Common mistake: waiting for the tax return to arrive before starting the audit. Audit firms are swamped from March to May and December to February. Book your auditor 2-3 months before your year-end if you want a reasonable price and on-time delivery.

How Much Does an Audit Actually Cost in 2026?

Audit fees vary widely based on transaction volume, complexity, and how well your books are kept:

• Small company (0-20 transactions/year, simple structure): HK$8,000 – HK$15,000
• Medium company (20-100 transactions, basic operations): HK$15,000 – HK$35,000
• Larger or more complex (multiple accounts, inventory, intercompany): HK$35,000 – HK$60,000+

The single biggest factor in audit cost is your bookkeeping quality. If you hand over a messy Excel sheet with receipts in a shoebox, expect the audit fee to double and the timeline to stretch to 3-4 months.

What you should have ready before the audit starts:

• Full bank statements for all accounts (HKD, USD, multi-currency)
• Sales invoices and supplier invoices matched to payments
• Expense receipts (scanned copies accepted)
• General ledger and trial balance
• Payroll records, MPF contributions, and IR56B forms
• Contracts, leases, and loan agreements

Record keeping is not optional. Under the Companies Ordinance, inadequate record keeping carries fines of HK$10,000 to HK$100,000. The IRD can request records for up to 7 years.

Provisional Tax and How to Reduce It

After filing your profits tax return, the IRD will assess your final tax and also issue a provisional tax demand for the next year. Provisional tax is roughly 75% of your prior year's final liability.

If your profits have dropped significantly, you can apply for a holdover under section 63 IRO. You have exactly 28 days from the provisional tax notice date to apply. Miss the deadline and you must pay the full amount, even if your actual profits are much lower.

Pay attention to: the provisional tax demand often arrives before your current year accounts are prepared. Don't ignore it — set a reminder and review your actual performance before the 28-day window closes.

Salaries Tax: What If You Pay Yourself a Salary

If you draw a salary from your Hong Kong company, you'll also need to file a Salaries Tax return (BIR60). For 2025/26:

• Basic allowance: HK$132,000
• Married person's allowance: HK$264,000
• Progressive rates: 2% on first HK$50k, 6% on next HK$50k, 10% on next HK$50k, 14% on next HK$50k, 17% on the remainder
• Standard rate: 15% on first HK$5M of net income, 16% above HK$5M

The IRD calculates both methods and charges you whichever is lower. Most salaried employees pay under the progressive rates.

The 2025/26 individual tax returns were issued on May 4, 2026. Paper filing deadline is June 4, 2026; e-filing gets an automatic 1-month extension to July 4, 2026.

Here's a practical tip for directors: paying yourself a salary up to the basic allowance (HK$132,000/year) means zero salaries tax, and the salary is deductible against your company's profits tax. Just make sure you follow proper payroll procedures — issue payslips, make MPF contributions, and file Employer's Returns on time.

Got questions about your Hong Kong audit or tax filing? Email Lemon Accountancy at info@lcpa.com.cn or call 00852-55749538 for a fixed-fee consultation.

Disclaimer: This article provides general information only and does not constitute professional tax or accounting advice. Tax rules may change, and individual circumstances vary. Always consult a qualified professional for advice specific to your situation.