The answer first
Every Hong Kong company must keep accounting records that explain its transactions and show its financial position, and must keep them for at least 7 years. This is required by both the Companies Ordinance and the Inland Revenue Ordinance, and both carry serious penalties.
A director who fails to take reasonable steps to ensure proper records are kept can be fined up to HK$300,000 and imprisoned for 12 months.
| Requirement | Source | Retention | Maximum penalty |
|---|---|---|---|
| Accounting records sufficient to show and explain transactions and give a true and fair view | Companies Ordinance (Cap. 622), section 373 | 7 years from the end of the financial year (section 377) | HK$300,000 and 12 months' imprisonment for a director in default |
| Sufficient records of income and expenditure, in English or Chinese, to enable assessable profits to be readily ascertained | Inland Revenue Ordinance (Cap. 112), section 51C | At least 7 years after the transactions | HK$100,000 |
What records to keep
| Category | Examples |
|---|---|
| Money in and out | Bank statements for every account, cash books, payment platform reports |
| Sales | Invoices issued, contracts, delivery notes, credit notes, receipts |
| Purchases and expenses | Supplier invoices, receipts, contracts, expense claims with supporting receipts |
| Assets and liabilities | Fixed asset purchase documents, loan and lease agreements, director and shareholder loan records |
| Stock | Stock movement records, year-end stock counts and valuations |
| Payroll | Employment contracts, payroll records, MPF remittance statements, IR56 forms |
| Related-party dealings | Agreements and invoices for transactions with directors, shareholders and group companies |
| Ledgers and summaries | General ledger, trial balance, receivable and payable listings, bank reconciliations |
Key takeawayA bank statement shows that money moved; it does not show why. Tax officers and auditors expect the invoice, contract or receipt behind each significant transaction.
Practical rules that save time and money
- Use a separate company bank account. Mixing personal and company money is the most common cause of expensive clean-up work at year end.
- Record transactions monthly. Monthly bookkeeping catches errors early and makes the audit faster and cheaper.
- Reconcile every bank account each month, including foreign-currency and payment-platform balances.
- Keep source documents with each entry. Scanned or digital copies are acceptable if they are complete, legible and retrievable.
- Document director and shareholder transactions. Loans to and from directors need clear records; some are restricted under the Companies Ordinance.
- Agree a record-keeping location and who can retrieve records; the company must be able to produce them on request.
Digital records
Records may be kept in electronic form, including cloud accounting software, provided they are accurate, complete, retrievable for the full retention period and can be produced in a readable form. Before replacing paper originals with scans or moving systems, check that the history can still be accessed after the switch; losing access to an old system does not reduce the 7-year obligation.
When records are not kept properly
| Consequence | What it means for you |
|---|---|
| Higher audit cost and delay | Auditors must do more work, or may be unable to complete the audit without a qualified opinion |
| Tax risk | An estimated assessment, and expenses you cannot support disallowed |
| Penalties | Fines under the Companies Ordinance and the Inland Revenue Ordinance |
| Directors' exposure | Relevant in disqualification proceedings and in insolvency |
| Banking and due diligence | Banks, investors and buyers will ask for records; gaps slow down every transaction |
If your books are behindDo not wait for the year end. The cost of reconstructing records rises the longer it is left. Talk to us early; we will scope the catch-up work and its cost in writing before we start.
How DBMS Global can help
- Monthly or quarterly bookkeeping, bank reconciliations and management accounts.
- Setting up cloud accounting and a simple document-collection routine.
- Year-end financial statements ready for audit, coordinated with a Hong Kong CPA.
- Catch-up bookkeeping for companies that have fallen behind.
- Where financial oversight or controls need strengthening, our sister brand RENT-CFO provides fractional finance leadership.
Official references
- Companies Ordinance (Cap. 622), sections 373 and 377
- Inland Revenue Ordinance (Cap. 112), section 51C
- Inland Revenue Department: guidance on keeping business records, www.ird.gov.hk