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As a business owner, setting up a separate bank account for your business must feature on top of your to-do list. Even though you may have a personal account, using it to care for your business finances can be a nightmare.

Apart from ensuring compliance with legal and accounting principles, a corporate bank account makes your business operations appear more professional and offers financial protection.

This guide covers everything you need to know about the importance of having dedicated company accounts.

What is a corporate account?

A corporate or company account refers to a bank account that’s opened in the name of a company. The account can receive business income and facilitate various business transactions.

Most leading banks and financial institutions across the globe support company accounts.

Opening company accounts may be mandatory for businesses depending on the laws and regulations of the country where you conduct business. In any case, opening company accounts for efficient management of business finances is highly recommended.

A word of caution — opening and operating company accounts shouldn’t be confused with corporate accounting. Corporate accounting is a specialized branch of accounting that deals with preparing a company’s financial accounts and cash flow statements.

How does a corporate account work?

A corporate bank account works in the same manner as any regular bank account.

You can use it to park any funds from your business and pay for various business expenses. You can also use the account to carry out online transactions.

Banks also issue checkbooks and debit cards to allow withdrawal from corporate bank accounts.

Are business accounts different from company accounts?

The term ‘business account’ is often used interchangeably with a corporate account.

Even though they may sound the same, there are a few differences between business and company accounts.

Who can open the account?

Any business entity is free to open a business account. It includes corporations, partnership, and sole proprietorship businesses, and limited liability companies.

However, only a corporation incorporated under the law can open a company account. Account opening should be backed by a corporate resolution passed by the company’s board of directors.

Independence of operations

Since corporate bank accounts are more formal, they can only be operated by a list of authorized signatories. The corporation holding the account can appoint the signatories by passing relevant board resolutions.

On the other hand, a business account usually operates as the personal bank account of the business owner though the account may be opened in the name of the business. The business owner can access the account directly without appointing other authorized signatories.

Liability to creditors

Since a company is recognized as a legal person, corporate bank accounts are not considered personal assets of the shareholders. As a result, only company creditors can attach them. The accounts cannot be used to meet unpaid personal debt obligations of any individual shareholder.

In contrast, a regular business account is considered a personal asset of the business owner, and personal creditors of the owner are free to attach them.

What are the benefits of having a company account?

The key advantages of maintaining a corporate bank account are as follows:

Lends credibility to your business

A proper company bank account signals to your investors, customers, and vendors that you are a legitimate business.

Promotes financial management

Corporate accounts make it extremely convenient to track your business expenses and keep the finances separate.

It helps you avoid personal liability

Separating business banking from your personal finances ensures you do not incur any personal liability for debts in your company’s name.

Fewer tax reporting issues

Maintaining a separate bank account for your business allows you to file accurate tax returns, as there are no overlaps between business income and personal income.

Better personal liability protection

As a corporate account holder, you won’t be held personally liable for any profit loss if your business fails.

A personal bank account doesn’t offer similar protection.

Boost the company’s credit rating

Without a corporate bank account, you need to rely on your individual credit score when you apply for any loans. Having a corporate account can boost the business’s credit rating and make it easier to obtain financial assistance for the company.

What are the differences between company accounts and personal bank accounts?

Here are the critical differences between corporate accounts and personal accounts:

Signatories

A personal account can only have one or a maximum of two signatories, as the account is meant for personal use.

Company accounts can have several signatories.

Fees

The fees for opening and managing company accounts are higher when compared to personal accounts.

End-use

A company account is meant for paying business expenses and receiving business income.

A personal account is for paying personal expenses and personal parking funds.

Liability

A corporate bank account protects business owners from incurring any personal liability for company debts.

A personal account doesn’t offer any protection to the account holder. If the account holder is declared insolvent, creditors can attach the personal account to meet unpaid obligations.

What documents do you need to open company accounts?

As part of corporate account opening formalities, you must submit several documents to complete a KYC check.

While the exact checklist of documents varies depending on the banks and the country they are located in, here’s what you can expect:

• Incorporation documents of the business, such as the certificate of incorporation, business registration certificate, and articles of association
• Proof of business, such as financial statements or business plan
• Proof of business address
• A copy of the board resolution of the company authorizing the opening of the bank account
• Identity proof documents, such as a passport or any identity card issued by the respective government of principal shareholders or beneficial owners of the company
• Proof of residence of the principal shareholders or beneficial owners
• List of signatories authorized to operate the business bank account

Always speak to the bank about the documents required to set up a new corporate account. Failure to submit relevant documents can result in the bank rejecting your account opening application.

Top tips for managing company accounts

Operating corporate bank accounts throw up unique challenges you may not encounter otherwise during banking operations. This is especially true if you are only used to operating a personal bank account.

Here are a few things company account holders should keep in mind for managing their accounts without glitches:

Be aware of introductory offers

Most banks offer a range of benefits to incentivize customers to open company accounts. These include higher interest rates, cash bonuses for preliminary deposits, and waiving maintenance fees for the first year, etc.

Ask each bank about their introductory offers to make an informed choice.

Check whether your deposits are insured

Ideally, you should open corporate accounts with financial institutions that insure the deposits. If the bank shuts down its business, you don’t risk losing all your hard-earned money.

In some countries, deposit insurance is mandatory for banks and financial institutions. For example, all licensed banks in Hong Kong offer insurance protection of up to HKD 500,000 per depositor.

Double-check the fees payable

There are various fees associated with company accounts, including monthly service fees and maintenance fees. It is also common for banks to charge an account opening fee or ask for a deposit in lieu.

Additionally, you may also need to pay transaction fees for ATM cash withdrawals and termination fees for shutting down your corporate bank account.

Banks may sometimes agree to waive the fees provided the account holder fulfills additional conditions, such as the bank’s minimum balance requirements.

Ask about additional services and benefits associated with corporate accounts

As a corporate bank account holder, you may receive additional benefits from your bank, such as access to an overdraft facility, pre-approved business loans up to a certain amount, mobile cheque deposit, and virtual assistance.

Depending on the nature of your business, you may be better off choosing a bank that offers more services and features to support your business banking needs.

Why is it critical for businesses to have company accounts? 

Regardless of the size or nature of your business, you should open a company account if you need a hassle-free way of receiving, managing, and remitting company funds.

Always consider the requirements of your business before you go ahead and open a business bank account.

If you want to incorporate a company in Hong Kong and need assistance with setting up your company account, get in touch with Air Corporate. Our experts can help you open a corporate account and suggest alternatives to traditional banks depending on the nature of your business.

FAQs

What is the cost of opening company accounts?

Most banks charge an application fee for opening any type of account, including a corporate account.

The exact cost varies depending on the bank you approach.

Who can open a corporate bank account?

Usually, any business organization incorporated under the law can set up a corporate bank account.

Unincorporated business entities can consider opening a regular business account.

Who is the owner of company accounts?

Company accounts are opened by incorporated entities recognized as legal persons. Therefore, the corporation owns the account.

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Given that Hong Kong is one of the top international financial centers, it is not surprising that Hong Kong’s banking sector enjoys a particularly favorable position in the world.

There are 163 licensed banks and 8 virtual banks catering to commercial lending and personal banking needs.

While it is incredibly easy to find a bank, who is the banking system’s crown jewel from the long list of banks in Hong Kong?

Check out this compilation of the Best National Banks in Hong Kong to Consider for Your Business.

List of Top Banks in Hong Kong

Here’s a list of the best banks in Hong Kong for your banking needs:

• Bank of China (Hong Kong)
• HSBC Hong Kong
• Hang Seng Bank
• Standard Chartered Hong Kong
• Citibank
• Bank of East Asia

How Banking System Works in Hong Kong

Before we dive deep into the list of banks in Hong Kong, here’s a look at how the banking sector operates.

Hong Kong is home to a thriving banking industry regulated by the Hong Kong Monetary Authority (HKMA).

HKMA classifies the banks into three tiers based on the deposit amount, nature of business, and deposit term. The three tiers are collectively called Authorized Institutions. They are:

Licensed banks

These banks can operate current and savings accounts and accept deposits of any size from the public.

They can also use the term’ bank’ in their name without restriction.

Restricted License Banks

Such banks can only accept deposits of HKD 500,000 or more.

They can be incorporated both within and outside Hong Kong.

Deposit-taking companies

Such banks can accept deposits of HKD 100,000 or above with a minimum maturity of 3 months.

Below is a list of the most popular banks in Hong Kong:

1 – Bank of China (Hong Kong)

Bank of China (Hong Kong) is the 4th largest bank in the world and manages total assets worth HKD 3 trillion and above.

It provides a full suite of banking services, including corporate banking, personal banking, and treasury services.

With over 190 branches, the Bank of China also ranks as the 2nd largest commercial banking group in Hong Kong.

Pros and Cons of Bank of China (Hong Kong)

Here’s a look at the advantages and disadvantages associated with the bank:

Pros

Cons

An extremely strong network of branches between Mainland China and Hong Kong, with over 280 branches in Hong Kong and 15 branches and sub-branches in China’s mainland to support the cross-border banking needs of customers  A diverse range of financial products and services are on offer, including foreign currency exchange, international settlement, financing, cash management, and customs clearance assistance  A solid market reputation

The account opening process can be long-winded Not all staff members speak fluent English

 

Bank of China (Hong Kong) Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – NIL
• Account opening – The application fee is HKD 1200. If the applicant is a company incorporated overseas, the bank levies an additional HKD 5000 plus fees incurred for conducting a company search at actuals.
• Receiving a wire transfer – No fees if the amount received is less than HKD 500 and HKD 60 if the amount remitted is more than HKD 500
• Sending a wire transfer – HKD 240 per remittance between branches of the bank in the mainland and designated branches outside Hong Kong and HKD 100 per remittance through electronic modes
  Information as of date. Please check the bank’s website to know the latest fees.

2 – HSBC Hong Kong

Hong Kong and Shanghai Banking Corporation (HSBC) is the biggest bank incorporated in Hong Kong, with over 220 branches throughout the region.

Known as “Wayfoong” in Cantonese, which means “focus of wealth,” HSBC Hong Kong is well known for its range of personal, commercial, and corporate banking financial services across Asia.

Pros and Cons of HSBC Hong Kong

Here’s a look at the advantages and disadvantages associated with the bank:

Pros	Cons
Offers diverse account options for business customers such as HSBC Sprint Account, HSBC Business Direct, and BusinessVantage The preferred choice of HNIs	Charges higher fees for telegraphic transfers The high minimum deposit for opening a corporate account

 

HSBC Hong Kong Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – HKD 10,000
• Account opening – HKD 1300 for opening accounts online. HKD 2250 if an overseas HSBC branch facilitates account opening.
• Receiving a wire transfer – HKD 65
• Sending a wire transfer –HKD 100 for the beneficiary account in Mainland China and HKD 125 for the beneficiary account in any other country
  Information as of date. Please check the bank’s website to know the latest fees.

3 -Hang Seng Bank

Hang Seng Bank is one of Hong Kong’s leading banks and a member of the HSBC group. It offers personal and commercial banking services.

It has 260 outlets in Hong Kong, 20 outlets in Mainland China, and a presence in Macau, Singapore, and Taipei.

Pros and Cons of Hang Seng Bank

Here’s a look at the advantages and disadvantages associated with the bank:

Pros	Cons
Local presence and solid reputation in Hong Kong Offers innovative e-services such as Mobile Cash Withdrawal	Global presence is not very strong compared to its competitors Lack of variety in financial products on offer

 

Hang Seng Bank Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – HKD 20,000
• Account opening – HKD 600 if you apply remotely and HKD 1,200 if you apply through Business Banking Center
• Receiving a wire transfer – HKD 65
• Sending a wire transfer – HKD 85 if the beneficiary account is also with Hang Seng Bank in Mainland China and Macau and HKD 125 if the beneficiary account is in another country/with another bank
  Information as of date. Please check the bank’s website to know the latest fees.

4 -Standard Chartered Hong Kong

Standard Chartered is one of three commercial banks with an HKMA license to issue banknotes. Asia Banker magazine has voted it as 3rd strongest commercial bank in the Asia Pacific region.

It operates 75 branches across Hong Kong.

Pros and Cons of Standard Chartered Hong Kong

Here’s a look at the advantages and disadvantages associated with the bank:

 

Pros	Cons
Strong global presence with operations in over 60 countries. Dedicated relationship managers for customers	Fees are higher compared to competitors In addition to maintaining a minimum balance, customers have to bear monthly maintenance fees

 

Standard Chartered Hong Kong Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – HKD 1000
• Account opening – HKD 5000
• Receiving a wire transfer – HKD 55
• Sending a wire transfer – Charges a flat fee plus an additional fee for non-domicile currency. A flat fee is HKD 140 for International Trade Account Customers, HKD 160 for Preferred Business Account Customers, and HKD 200 for Business account customers
  Information as of date. Please check the bank’s website to know the latest fees.

5 -Citibank

Citibank Hong Kong was the first foreign bank to start operations in Hong Kong. Apart from commercial banking, Citibank also offers investment banking services.

It has 48 branches throughout Hong Kong and is also the largest credit card issuer in the country.

Pros and Cons of Citibank Hong Kong

Here’s a look at the advantages and disadvantages associated with the bank:

Pros	Cons
No initial deposit requirement Bespoke private banking services for ultra-high-net-worth entrepreneurs Well-recognized brand globally	Sporadic issues with customer service No online account opening is available in Hong Kong

 

Citibank Hong Kong Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – NIL
• Account opening – HKD 8000 for an overseas company and HKD 2000 for a local company
• Receiving a wire transfer – waived
• Sending a wire transfer – No fees for online transfers except for Citi Banking clients who need to pay HKD 200. Transfers through manned channels are charged HKD 220 for CitiPriority clients and HKD 100 for CitiGold clients.
  Information as of date. Please check the bank’s website to know the latest fees.

6 -Bank of East Asia

Bank of East Asia is the biggest independent in Hong Kong and provides a bouquet of services including consumer finance, retail banking, and corporate banking services.

It has 17 branches throughout Hong Kong.

Pros and Cons of Bank of East Asia

Here’s a look at the advantages and disadvantages associated with the bank:

 

Pros	Cons
Services are at par with foreign banks Has a strong reputation in the Hong Kong market as a family-run bank	No global presence A high initial deposit fee

 

Bank of East Asia Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – HKD 10,000
• Account opening – HKD 10,000
• Receiving a wire transfer – HKD 65
• Sending a wire transfer – HKD 200 plus cable charge if sent through the branch and HKD 20 plus cable charges if sent through online channels. The cable charge is HKD 100 if the beneficiary account is with the Bank of East Asia and HKD 130 for other banks.
  
  Information as of date. Please check the bank’s website to know the latest fees.

Why Choose The Best Banks for Your Business

Not all banks are created equal — services offered and fees vary widely.

Whether you opt for international or local banks, picking the best one suited to your banking needs is extremely important. After all, banks are an essential cog in the wheel for your business operations.

From providing long-term and short-term finances to remitting funds, there’s hardly any aspect of your business where banks don’t play a role. So make sure to consider what each bank can offer you carefully before you sign up with one.

If you are a foreign business wondering How to Open a Company Bank Account Online in Hong Kong, contact Air Corporate immediately.

We can assist with establishing your bank account with a physical or virtual bank in Hong Kong, making it convenient for entrepreneurs and small businesses to operate effectively. If you already have an account with an HK bank but cannot make any withdrawals, we can also guide you on How to Fix a Suspended or Frozen HK Bank Account.

FAQs

Who is eligible to open a corporate bank account in Hong Kong?

The exact eligibility criteria depend on the type of account you want to open and the bank where you want to open the account. As such, anyone can open an account in Hong Kong.

Which Hong Kong bank is best for foreign entrepreneurs?

HSBC, Citibank, Bank of China, and Standard Chartered are some of the top choices.

However, the exact match depends on what the customer is looking for.

Which is the largest bank in Hong Kong?

In terms of the assets held, HSBC ranks as the largest bank in Hong Kong. In 2021, the bank held assets worth HKD 10 trillion.

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Over the years, setting up an offshore entity has been one of the chosen ways for businesses to enjoy better asset protection and reduce their tax burden legally.

But very often, people tend to confuse an offshore company with offshore income. While offshore income is primarily a concept relevant to taxation, an offshore company is merely a structure for carrying out business.

Having said that, an offshore company may also benefit from favorable taxation laws regarding offshore income.

This article tells you everything you need to know about the two.

What is an offshore company?

An offshore company refers to a corporate entity incorporated outside the jurisdiction where the operations are primarily carried out, and the stakeholders reside.

The term offshore means something that is located outside or abroad.

Setting up such a company for business activities that comply with the law is perfectly legal.

Suppose you are based in Singapore and decide to incorporate a company in Hong Kong. In that case, your Hong Kong company will be an offshore company.

Similarly, if you are located in Hong Kong and decided to set up a company in Malaysia, it will be an offshore company.

While you can set up an offshore entity in a jurisdiction of your choice, some destinations work better than the rest due to attractive tax structures and corporate compliance requirements.

It is always better to evaluate the pros and cons of setting up an offshore company in the destination of your choice before you move ahead with the incorporation process.

A few pointers to keep in mind when you are considering incorporating an offshore company:

• What is the purpose of your offshore company?
• Do you want to set up your offshore company in a common law or civil law country?
• Are there any restrictions on the type of activities your offshore company can carry out in the jurisdiction of your choice?
• Is it easy for an offshore company to open a bank account in the country you are considering?

Features and benefits of setting up an offshore company

When you register an offshore company it’s important to understand factors that will be able to benefit you from setting one up.

Here are some of the key features and benefits of setting up an offshore company:

It can help you save on taxes

Reducing tax liability legally is one of the key concerns for business owners across the globe.

Typically, offshore structures are chosen for the attractive taxation regime of the country of incorporation.

For example, setting up a Hong Kong offshore company means that dividends declared will not attract taxes, making Hong Kong a preferred choice for doing business.

There is also no capital gains taxes in Hong Kong. This means no tax is levied on the profits from the sale or disposal of an asset unless facts establish that the disposal was in the nature of a trade.

Companies set up in Hong Kong that have operations generating profit outside Hong Kong don’t have to pay profit tax in Hong Kong.

It offers better confidentiality

Several offshore jurisdictions have strict privacy laws that prohibit government authorities and financial institutions from disclosing the details of company directors, shareholders, company bank accounts, etc., other than in exceptional circumstances.

This is especially beneficial for new players in the market who do not want their competitors to know about their operations or expansion plans.

Business owners enjoy better asset protection

When you park your assets in a different jurisdiction, you create a protective structure around them to prevent them from being seized due to frivolous litigation or seizures by the government.

For most business owners, setting up an offshore company is one of the preferred ways to safeguard their assets from creditors, attorneys, and plaintiffs.

Some offshore jurisdictions have debtor-friendly laws that make it easy to set up LLCs and trusts to protect the investor’s assets.

If someone wants to enforce a judgment passed against the investor in their home country and access their assets for setting unpaid debts, they would have to go through a circuitous path to get access to the offshore assets.

You enjoy relaxed corporate compliance

Corporate law regimes for some parts of offshore company jurisdiction are not strict in terms of taxes, which makes it easier to set up companies.

In some countries, there are no minimum paid-up capital requirements to be met. Offshore companies also have less stringent auditing and financial reporting obligations.

Moreover, some jurisdictions do not have any foreign exchange control regulations, making it easy to freely repatriate any income earned in those countries to any other destination.

Your assets can benefit from political stability

Setting up an offshore business can be a great move for asset protection, especially when if you find the chosen destination to be economically stable.

Carrying out business in a country engaged in civil war or facing a huge recession means constantly fearing external activities completely disrupting your business transactions.

What is a concept of an offshore income?

An offshore income refers to any income generated through activities performed outside your home jurisdiction.

For instance, if you’re a tax resident in that jurisdiction, this counts as offshore income.

Suppose you are a resident of the US and you have an offshore company in Hong Kong. Hong Kong tax laws levy a profit tax on only Hong Kong-source income.

So if you can demonstrate that the earnings of your company are through services rendered in the US, such income can be called offshore income.

Whether you can claim any tax benefits on your offshore income varies depending on the country where you set up an offshore company.

For example, suppose a Hong Kong company wants to claim tax benefits for offshore income. In that case, it should actively seek exemption when filing a profit tax return or obtain an advance ruling before commencing business activities.

Only if the Inland Revenue Department accepts the claim can a company benefit from the exemption.

So earning offshore income doesn’t mean it is automatically tax-free. You may still be taxed by your home country.

What are the factors you need to consider for offshore income?

If you want to take the tax benefits associated with offshore income, consider choosing a jurisdiction that follows a territorial tax system while setting up your offshore company.

Only such countries have tax exemptions on offshore income or foreign-earned income.

So, when you set up a company in a country with territorial taxes, you don’t have to pay any taxes on any income earned outside that country.

Another important factor to consider when selecting a jurisdiction with favorable offshore income tax laws is to see whether they have been flagged as a non-cooperative jurisdiction for tax purposes by the European Union.

The list, which has existed since 2017 and is updated regularly, identifies jurisdictions that do not have good tax governance in place to fight off tax evasion and avoidance.

Since such jurisdictions may change their tax regimes to comply with the EU requirements, businesses should not solely choose a jurisdiction for their offshore income tax treatment.

There is a possibility of such countries amending their tax laws to align with international tax standards, and one must evaluate the potential impact of the changes on their tax treatment.

For example, although, at present, only income sourced in Hong Kong is subject to profit tax, the Inland Revenue Department is in the process of updating the tax regime.

As part of proposed changes, dividends, disposal gains from shares or equity interest, interest income, and income from IP, which are foreign-sourced income, may be subject to profit tax:

• When such income is received in Hong Kong; and
• The relevant taxpayer fails to meet the requirements set out by the Inland Revenue Department

Bottom Line

Whether you want to reduce your tax burden, protect your assets, or enjoy better privacy, setting up a company in a foreign jurisdiction is a great option.

While there are several countries you can consider for offshore companies, make sure to pick one that meets your requirements. Don’t opt for the most popular destination.

If you’re considering Hong Kong for your next offshore venture, it can be an excellent choice for corporations looking for a new home for their business.

Get in touch with Air Corporate and let our experts help you start your offshore business in Hong Kong the right way.

FAQs

When is it illegal to set up an offshore company?

It is illegal only when you intend to use the offshore entity to evade taxes or money laundering activities.

How long does it take to incorporate an offshore company?

The incorporation process varies depending on the jurisdiction you choose.

Typically, most countries offer a hassle-free process of setting up an offshore entity in a bid to attract more foreign companies.

For instance, you can complete the entire process of setting up a Hong Kong offshore company in just a few days.

I pay taxes in the country where I live. Do I have to file my tax return in the country where I have set up an offshore entity?

This depends on the tax laws of the country where you have set up the company. Always make sure to seek proper legal, tax, and accounting advice to stay in compliance with the law.

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Understanding the difference between management accounts and statutory accounts is crucial for business owners and decision-makers. These two types of accounting serve distinct purposes and provide different insights into a company’s financial health.

The two critical business management and accounting benchmarks are statutory and management accounts. While the Hong Kong Companies Ordinance states that all companies in Hong Kong must prepare statutory accounts, maintenance of management accounts is usually discretionary.

Both help to monitor the finances of a company and also forecast the performance in the future. That’s why Understanding Hong Kong accounting standards  is critical to ensure your company complies with the law.

Here’s what you need to know about maintaining management and statutory accounts.

What are management accounts in Hong Kong?

As the name suggests, accounts that aid in the internal decision-making process of a company are known as management accounts. They represent cumulative financial statements prepared during the financial year of a business. Most companies use management accounts for better financial control.

The key objective of management accounts is tracking various financial metrics and key performance indicators to gain deeper insights into how a business is faring. However, these accounts are rarely available to shareholders unless the company is struggling.

Typically, here’s what is included as part of management accounts

• Statement on the financial position, highlighting the assets and liabilities of the company
• Key performance indicators of the business to track performance
• Cash flow statement
• Profit and loss statement
• Executive summary about profit margins, turnover and expenses

Since maintaining management accounts is discretionary, most small businesses forgo drawing up one. However, if you are a startup needing accurate data for making business projections, it is advisable to maintain management accounts. Moreover, such accounts may also help you fare better when talking with external parties such as investors.

What are statutory accounts in Hong Kong?

A statutory account refers to financial statements prepared every year by limited companies. The primary objective of statutory accounts is to demonstrate the various financial actions that the company took in that financial year and provide an overview of the finances.

In other words, statutory accounts show a company’s overall earnings, profit, deductions/adjustment and spending without delving into minute details. They are also known as ‘company accounts’ or ‘annual accounts’.

The exact scope of information that the statutory accounts would include depends on the size of your company. As per the Hong Kong accounting standards, the statutory accounts of a company should include the following financial reports:

• Balance sheet
• Profit and loss account
• Notes on accounts
• Audited financial statements of the financial year (1 April to 31 March)
• Auditor’s report and opinion
• Director’s report

A certified public accountant in Hong Kong should certify the financial statements. The audited statements also need to be approved by the company’s board of directors and adopted by the shareholders.

Only when a company attains a dormant status is it exempted from preparing audited financial statements.

How do management accounts differ from statutory accounts?

Now that you know what management account and statutory account mean, understand the differences to decide how best you can utilise them for your company’s financial health.

Here are the major differences between management accounts and statutory accounts:

Legal status

Maintaining management accounts is not mandatory as it is not stipulated by law. Such accounts serve as internal reports to guide the decision-making process of business owners.

But every company is obligated to maintain a statutory account as per law. Though small companies may be exempted from maintaining statutory accounts in some countries, there is no just exception in Hong Kong.

Content

One can get an overview of the company’s financial activity by looking at its statutory accounts. In contrast, management account reports offer more in-depth details as they are prepared to help with the day-to-day operations of a company.

Frequency

The timeline for preparing the accounts is different.

Management accounts can be generated at the convenience of the company. So the company gets to decide the frequency. But statutory accounts must be drawn up annually to comply with the law.

Filing requirements

Under Hong Kong law, a copy of the statutory accounts should be retained with the company secretary and submitted to the Inland Revenue Department when filing a Profit Tax return.

Management accounts don’t need to be filed with any authorities as they are for internal use.

Format

The format of statutory accounts remains the same across companies, including a balance sheet, profit and loss account, and notes on accounts.

The format of management accounts is completely bespoke as they are personalized to suit the needs of their audience.

Audience

Management accounts are meant for company executives and key decision-makers within the company.

Statutory accounts are for an external audience, which includes shareholders and company regulators.

Use

Both statutory and management accounts are useful if you want to take stock of the current financial situation of your company.

However, when it comes to forecasts about the business, management accounts fare better because of their in-depth analysis.

Benefits of management accounts in Hong Kong

Here are the major benefits of using management accounts

• These accounts can be used to obtain the latest information about the cash flows of a business as they present raw date.Business owners can review the management accounts to understand the revenue inflow and financial position of the company to develop relevant strategies to avoid any potential crisis. It can also help business owners detect financial fraud.
• Management accounts are useful for identifying the tax liabilities of a business. Typically, chartered accountants in Hong Kong review a management account to determine the profit tax a company needs to pay.
• Dividend payments can be calculated using management accounts.
• Auditors need to peruse several documents to prepare the financial statements during audits. A company can prepare management accounts to help the auditors.
• They can also identify accounting errors and correct them ahead of the audit.
• Management accounts can help companies identify unwanted expenses and plan expenditures of resources to maximise profits.
• The company executives can decide the format since there is no statutory requirement.

Benefits of statutory accounts in Hong Kong

• Statutory accounts help to keep track of the financial health of your company.
• They are a ready reckoner of your company’s performance and investments that various stakeholders, investors, and even regulators can refer to. This is especially useful if the company wants to privately or publicly raise money.
• Statutory accounts represent a true and fair view of the company’s financial position and provide insights into the actual business performance. This adds credibility to your business.
• Statutory accounts can be used to discover the risk of financial fraud.
• It offers insights into the efficiency and effectiveness of the processes adopted by the company.

Bottom line

Now that you have a succinct understanding of How SMEs work with management accounts and statutory accounts, do not delay in seeking help to get the accounts of your Hong Kong company audited.

Air Corporate offers accounting services for SMEs and cuts the necessary paperwork involved. Whether you are a newly established business in your early days or one that has been around for a while, different packages are available to suit your needs.

So save your precious time by outsourcing the work to our qualified accountants.

FAQs

Should a registered non-Hong Kong company file annual accounts with the Companies Registry in Hong Kong?

As per the Companies Ordinance, a registered non-Hong Kong company should file a certified copy of statutory accounts with the Companies Registry along with its annual return if it is;

• required by the laws of the place where the company is originally incorporated or registered; or
• if the company is bound by the rules of any stock exchange or other regulators in that jurisdiction to deliver such accounts for inspection by the public

What is the role of the auditor’s opinion as part of statutory accounts?

An auditor can give either a qualified opinion or an unqualified opinion.

An unqualified opinion means that the chartered accountant agrees with the methods used for preparing the accounts and provides reasonable assurance about the accuracy of accounts.

On the other hand, a qualified opinion means there may be certain limitations about the information provided, or the financial statements have not been prepared following the generally accepted accounting principles.

Is there any penalty for delay in preparing statutory accounts?

Hong Kong laws do not impose any penalty for late filing of audited accounts.

However, audited financial statements are part of tax returns, and the tax authorities levy a fine for delayed submission.

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Having the freedom to work from anywhere in the world is incredibly enticing. And digital nomads enjoy this freedom to the fullest.

Thanks to the internet and technology, they can be termed as people who work from a remote location anywhere in the world.

One of the key concerns that one has as such a remote worker is the tax treatment of their income.

Since the person may be working out of various countries and each country has its own tax regulations, figuring out what tax rates apply to such an individual can be challenging. This is also the case with Hong Kong, considered one of the Best countries to start a business for digital nomads.

In this blog post, you will learn everything about digital nomad taxes in Hong Kong.

What do digital nomads do?

Digital nomads are essentially remote workers. They are not bound by any location and travel freely while working.

They may be self-employed or employed by an organization. However, they cannot be pigeonholed into one specific task as they work in different industries in various capacities.

Here are some of the popular sectors that have a vast number of such remote workers:

• Design
• IT
• Accounting
• Marketing
• Project management
• Sales
• Software development
• Writing
• Teaching
• Transcription and translation
• Recruiting and HR

What do taxes look like for digital nomads in Hong Kong?

Taxation laws are a critical concern for remote workers working in Hong Kong.

While Tax exemption in Hong Kong is one of the key reasons why people prefer working out of Hong Kong, can every digital remote worker also benefit from the same?

At the outset, note that taxes in Hong Kong are based on the territorial principle. This means that Hong Kong authorities can tax only such income earned in Hong Kong. But there are no specific digital nomad taxes levied by authorities.

Here’s a break up of the various applicable taxes:

Salaries tax

Any individual who earns income from a Hong Kong office by virtue of Hong Kong employment or due to services rendered in Hong Kong through visits of more than 60 days in any tax year is liable to pay Hong Kong salaries tax.

Net Chargeable Income	Progressive Rates
On the First HKD 50,000	2%
On the Next HKD 50,000	6%
On the Next HKD 50,000	10%
On the Next HKD 50,000	14%
On the Remainder	17%

Source: Tax Rates of Salaries Tax & Personal Assessment

The tax is levied progressively on the net taxable income post deductions and allowances. The tax rate is as per the tax slab, begins at 2%, and is capped at 17%.

However, if the tax you need to pay basis of your net chargeable income is more than the tax charged at a standard rate of 15% on your net total income, then you need to pay tax at 15%.

Your chargeable income is calculated based on the various types of income you need to report through your tax return. This includes:

• Salary and wages
• Allowances and fringe benefits
• Bonuses
• Commissions
• Pensions
• Share options

Your residence or citizenship has no relevance when deciding liability for paying Hong Kong salaries tax. Any income earned locally by nomadic workers who stay less than 60 days is exempt from payment of salaries tax.

As per the Inland Revenue Department, any employment qualifies as non-Hong Kong employment only when the following three conditions are met:

• The employment contract was negotiated and entered into and is enforceable outside Hong Kong;
• The employer is not a resident of Hong Kong; and
• The employee’s salary is paid outside Hong Kong.

Unless all conditions are met, the employment will likely qualify as Hong Kong employment and attract relevant salary taxes.

Profits tax

Any person, including a corporation, partnership, or sole proprietorship, carrying on a business in Hong Kong has to pay tax on the profits made in Hong Kong, regardless of the person’s tax residence. Nomadic workers also fall within this unless they belong to jurisdictions with tax treaties with Hong Kong to protect against double taxation.

Hong Kong follows a two-tiered profits tax rates regime. The tax rate is as follows:

Assessable profits (HKD)	Tax rate
Not more than 2,000,000	8.25%
Over 2,000,000	16.5%

Source: Tax Rates of Profits Tax

From January 2023, Hong Kong authorities have classified the following types of offshore income to be subject to profits tax if such income is received in Hong Kong SAR by a multinational enterprise, unless a few additional conditions are met:

• Interest
• IP income
• Disposal gains from selling equity interests
• Dividends

Property tax

Hong Kong tax legislation stipulates that any non-permanent resident who intends to purchase a residential property must bear the Buyer’s stamp duty and Ad Valorem stamp duty capped at 15% each.

However, once non-residents have resided in Hong Kong for at least seven years, they can apply for a refund.

Automatic exchange of information (AEOI)

It is also worth noting that Hong Kong is a signatory to the Automatic Exchange of Information agreement of OECD. As a result, Inland Revenue Department is obliged to report information of all digital nomads back to the tax authorities of their country of residence.

As of 2022, Hong Kong authorities have an information exchange relationship with 74 countires through bilateral or multilateral competent authority agreements.

If you have not been declaring your income and paying taxes in your country of residence and want to use Hong Kong to escape your tax liability, you can get in trouble.

How can digital nomads benefit from the ‘Tax haven’?

While there is no international tax law for a nomadic worker, they can’t escape the tax burden entirely. However, tax havens can help reduce the tax liability of nomadic workers to some extent:

For starters, nomadic workers can take advantage of the flexible taxation laws of tax havens by becoming a non-resident in their home country and demonstrating that they have permanently cut off ties. Some of the benefits include:

• Exemption from profits tax in case of offshore income generated by a company incorporated in Hong Kong;
• No capital exchange control regulations which promote free repatriation of income;

Setting up a business in a tax haven can also help nomadic workers save on taxes, provided the business operations are carried out elsewhere. For example, there are no withholding taxes on any interest and dividends earned from shareholding, investments, and deposits;

Bottom Line

If you are a remote worker in search of a destination with an efficient tax regime, Hong Kong is an excellent destination you can consider. But remember that simply becoming a digital nomad cannot help you forgo your tax liability. While you can reduce your taxes or become tax-neutral, escaping tax payments is punishable.

Are you searching for seasoned advice for structuring your operations to minimize your tax burden in Hong Kong? Get in touch with Air Corporate right away.

The experienced team at Air Corporate can guide you through the entire process and also help with Setting up a business account and company in Hong Kong.

FAQs

Does Hong Kong offer any special digital nomad visas?

Hong Kong doesn’t offer any specific type of visa to a digital nomad.

However, one can apply for Investment as Entrepreneurs visa and the Quality Migrant Admission Scheme visa if they want to work as a digital nomad in Hong Kong.

Both these schemes have requirements you must fulfill to be eligible for the visa.

How much money should I have to become a digital nomad in Hong Kong?

It is difficult to zero in on a specific number as it depends entirely on your lifestyle and the type of work you want.

As a rule of thumb, you should have enough to live comfortably within your means.

I am a digital nomad. Do I need to be physically present in Hong Kong to set up a business?

As per Hong Kong laws, directors or shareholders don’t have to be physically present in Hong Kong when setting up an offshore company.

It is possible to complete the process remotely.

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