Business Recordkeeping in Hong Kong

In Hong Kong, maintaining proper business records is a legal duty, not just a recommended practice. Good recordkeeping also helps your business run smoothly and avoid penalties. 

Failure to comply can result in hefty fines, daily penalties, or even criminal charges in severe cases.

What Is Business Recordkeeping? 

Business recordkeeping involves documenting your company’s financial transactions—every sale, expense, payment, and purchase. It forms the foundation of your accounting system, enabling accurate reporting and informed decision-making.

Under the Companies Ordinance (Cap. 622) and the Inland Revenue Ordinance (Cap. 112), all businesses in Hong Kong must keep proper records.

Without reliable records, your business risks poor financial management and potential compliance issues.

Why Should I Maintain Good Business Records?

Keeping accurate records is essential for both compliance and good business operations:

• File accurate tax returns: Avoid under- or over-reporting by keeping clear records.
• Prepare financial reports: Essential for strategic planning and communicating with stakeholders.
• Simplify audits: Organized documents reduce stress and risk during tax inspections.
• Resolve disputes: Clear documentation helps settle issues with employees, customers, or suppliers.
• Attract investors and banks: Transparent financials demonstrate business credibility.

Different Ways to Keep Business Records

Both paper and electronic formats are accepted in Hong Kong, as long as the records are accurate and accessible.

Paper-Based Recordkeeping

Many businesses still use traditional paper records. This method is familiar but comes with risks:

• Physical damage from fire, water, or accidents.
• Storage limitations and difficulty retrieving older documents.
• No added compliance advantage over electronic formats.

Electronic Recordkeeping Method

Electronic recordkeeping is fully compliant with IRD guidelines. This method is particularly suitable for businesses that handle a high volume of documents. 

Scanned Invoices

Invoices and accounts payable records can be quickly digitized using a scanner or a smartphone camera.

Digital copies can also be password-protected or encrypted to maintain confidentiality and prevent unauthorized access.

Scanned Receipts

Receipts can be digitized in the same way, allowing for faster processing and easier storage. With proper software, digital receipts can be tagged, categorized, and retrieved instantly.

Digital formats also integrate well with accounting software, enabling automation and reducing manual data entry errors.

Electronic Recordkeeping Regulations 

Under the Electronic Transactions Ordinance (Cap. 553), electronic records are legally valid if they meet these criteria:

1. Future Accessibility

Records must remain readable, retrievable, and complete for the required retention period. This means storing them in stable formats (e.g. PDF, XML) and using platforms that allow you to retrieve full copies if needed during an audit or inspection.

2. Original or Equivalent Formats

If created digitally, records can remain in their original format. If scanned from paper, they must be accurate and unaltered copies.

Acceptable Digital Storage Methods

Storing scanned images of original documents on CD-ROMs, DVD-ROMs, or USB drives is an acceptable substitute for keeping physical copies. 

If a document is initially created in digital format, it is considered an electronic record and does not require conversion to paper.

3. Metadata for Verification

To support the credibility and traceability of electronic records, it is advisable to include:

• Names or IDs of the sender and recipient
• Date and time of transmission or creation
• Digital signature, if applicable, or other verification markers

Record Retention Period

Under Section 51C of the Inland Revenue Ordinance, businesses must keep records for at least seven years from the date of the transaction.

For example:

• Purchases in 2024 must be retained until 2031.
• Tax filings for 2024 must be backed by documents dating to 2017.

This rule supports transparency, proper tax filings, and audit readiness.

Penalties for Not Keeping Proper Records

If your business doesn’t follow Hong Kong’s rules for keeping records, you could face serious trouble. The Companies Ordinance and the Inland Revenue Ordinance say that breaking the rules can lead to fines as high as HK$100,000 per violation.

In some cases, company directors (the people who run the business) can be held personally responsible. If things are really serious, they could even face criminal charges or jail time for not keeping proper records.

That’s why it’s important to stay on top of these rules. Keeping good records not only helps you avoid legal problems but also builds trust with partners and helps your business grow the right way.

What Records Does a Business Need to Keep

Here are the main types of records your business should hold on to:

Financial Records

The Inland Revenue Department (IRD) requires that you keep the following:

• Income statements – These show how much money your business earned and spent.
• Cash flow statements – These track all the money coming in and going out of your business.
• Assets and liabilities – These are things your business owns or owes, often shown on a balance sheet.
• Service records – If you offer services, you need to keep details about what you provided.
• Daily transaction records – You must record every amount of money received or paid in your business.
• Other documents – Keep things like sales receipts, invoices, purchase records, and expense vouchers.

If your business sells or buys goods, you also need to record:

• Product details – What was bought or sold, how many units, who the buyer and seller were, and at what price.
• Stock records – These are inventory checks and final stock reports at the end of your financial year.

Tax Records

Hong Kong’s tax system is known for being simple and fair, but you still need to keep your tax documents organized. These include:

• Tax returns and assessments – These show how much income you had, what deductions you claimed, and how much tax you owe.
• Letters from the government – Keep any notices, questions about your taxes, or updates from the tax office.

Common Tax Forms in Hong Kong:

• BIR51 – For companies
• BIR52 – For individuals who are not companies (like sole traders)
• BIR54 – For partnerships or people who don’t live in Hong Kong

Once you send in your tax return, the IRD sends you a Notice of Assessment with your tax bill and payment deadline.

Employment Records

You also need to keep important documents about your employees:

• Employment contracts – Agreements showing job duties, salary, and terms of work.
• Payroll records – A breakdown of wages, bonuses, deductions, and MPF (retirement contributions).
• Leave records – Information on vacation, sick leave, and other time off.

These records are required under the Employment Ordinance and are useful if there’s ever a labor dispute or inspection.

Corporate Records

Businesses also need to keep track of key company documents:

• Meeting minutes – Notes from board or shareholder meetings, including important decisions made.
• Board resolutions – Written decisions on major matters like hiring directors or approving investments.
• Shareholder agreements – Contracts between shareholders that explain their rights and responsibilities.

For example, if your startup receives funding, investors may want to see shareholder agreements and board resolutions as proof of decisions.

Smart Habits for Better Business Recordkeeping 

A good recordkeeping system doesn’t have to be time-consuming. When done right, it can actually save time, and make everything from tax prep to audits much easier. To keep your records neat, accurate, and ready whenever you need them, follow these five smart practices:

1. Set Up a Digital Document System

As your business grows, so will your paperwork. It’s easier to manage if you store files digitally. Organize them by type and date, and review them regularly to stay on track.

2. Know What You Need to Keep

Hong Kong law requires businesses to keep records for at least seven years. This includes invoices, receipts, bank statements, payroll records, accounting books, and year-end summaries like stock counts and creditor lists.

3. Automate With Software

Modern accounting tools can help generate invoices, automate payroll, and even handle tax calculations.

Look for systems that offer:

• Salary and deduction calculations
• Leave and attendance tracking
• Tax and MPF compliance features
• Easy integration with your accounting software
• Data security and access controls

If handling it all still feels overwhelming, consider Air Corporate for your accounting tasks to save time and reduce stress.

4. Match Records to Transactions Monthly

Each month, reconcile your bank statements against your internal records. Every transaction should be supported by a corresponding document—such as a receipt, invoice, or agreement.

Many modern systems allow you to attach digital copies of receipts or contracts to each entry. 

5. Back Up and Secure Your Data

Always keep backups in at least one other secure location. Cloud storage with encryption and secure access controls is ideal, but you should also keep encrypted offline backups (e.g., USB or external drive) in a safe location.

To protect sensitive information, use strong and unique passwords, enable two-factor authentication, and limit user access to only those who need it. 

Conclusion

Proper recordkeeping helps you stay compliant, attract partners, and prepare for audits. Don’t leave it to chance; put the right systems in place to support your company’s success.

Need help setting up a compliant recordkeeping system in Hong Kong?

Here at Air Corporate, our experts can guide you through digital solutions, compliance checks, and custom strategies, so you can focus on growing your business with confidence.