Watch out! Five accounting pitfalls to watch out for when starting a business
Watch out! Five accounting pitfalls to watch out for when starting a business
When
setting up a company in Hong Kong, the details of accounting and legal affairs often determine whether the company will run smoothly in the long run. This article will explore five common accounting pitfalls and provide coping strategies to ensure that companies do not face unnecessary hassles in the course of doing business.
Trap # 1: Never appoint a company secretary at will
When setting up a company in Hong Kong, some entrepreneurs may choose to appoint a friend or relative as the company secretary, thinking that this is both cost-effective and convenient. However, one entrepreneur once shared to
Capital Business Center that his company’s legal secretary was his friend, but the friend knew little about the duties of the legal secretary and never took the initiative to remind the company of various documents that should be submitted, resulting in the company being fined.
Solution: It is recommended to choose a professional and experienced secretarial company. Such a company can provide clear guidance to ensure that your company submits the necessary documents in accordance with the regulations every year, thereby avoiding legal issues and fines. This way, you can focus on growing your business without having to worry about legal details.
Trap # 2: No business activity does not mean no management
Many entrepreneurs may think that if the company has no business activities, it can be left alone. In fact, from April 1, 2023, the Hong Kong government has mandated that a limited company is required to submit an audit report regardless of its revenue. In addition, limited companies are required to submit annual returns to the Government every year.
Coping strategy: If your company is indeed in a state of no business activity, you can choose to apply to become an inactive company, which can be exempted from the obligation to submit audit reports and annual returns. However, please note that even as an inactive company, it is still required to comply with relevant regulations and be ready to resume business activities at any time.
Trap # 3: Avoid improper tax cuts
In the face of tax pressure, entrepreneurs may seek various improper tax reduction means, such as exaggerating business expenses, fabricating false pre-tax losses, etc. While these practices may reduce the tax burden in the short term, they are extremely risky in the long run.
What to do: File your taxes wisely and comply with tax laws. Do not try to reduce your tax burden through unfair means, doing so will only put you in legal risk. Once it is discovered by the tax office, it will face heavy fines and legal liabilities.
Trap # 4: Apply for a company-specific bank account in a timely manner
Many entrepreneurs may use a personal bank account to run a business in the early days of their company in order to save costs or ease of operation. But be aware that once your personal bank account is frozen, it will have a serious impact on your normal life and business elites.
Coping strategy: Apply for the company’s special bank account as soon as possible, and manage the company’s finances separately from those of individuals. This can not only ensure the independence and security of the company’s funds, but also avoid affecting the company’s business due to personal bank account problems.
Trap # 5: Ensure accounting records are accurate and complete
Accounting records are an important reflection of the company’s financial status, and they are also the focus of the tax bureau’s audit. If the accounting records are inaccurate or incomplete, it will bring great legal risks to the company.
Coping strategy: Select a team of experienced and professional accountants to ensure the accuracy and integrity of accounting records. Conduct regular internal audits and self-audits to identify and correct possible problems in a timely manner. This can not only avoid legal risks, but also lay a solid financial foundation for the long-term development of the company.
In short, when setting up a Hong Kong limited company, accounting and legal details are crucial. Only by fully understanding and avoiding these accounting pitfalls can we ensure the smooth operation of the company in the long run.
