Bookkeeping and Accounting in Hong Kong: A Guide for SMEs

For small and medium-sized enterprises (SMEs) in Hong Kong, managing finances is essential for staying compliant with local regulations and ensuring long-term business success. However, many business owners are unsure about the key differences between bookkeeping and accounting, as well as their respective roles in maintaining financial health.

In this guide, we’ll break down the main differences between bookkeeping and accounting, outline what Hong Kong law requires, and whether you should manage these tasks in-house or seek professional assistance.

Bookkeeping is actually part of the accounting process. It supports the preparation of accounting reports by maintaining detailed financial records.

Here’s a quick comparison table:

Without accurate bookkeeping, it would be impossible to provide reliable financial analysis, prepare tax filings, or guide decision-making.

Next, let’s look at bookkeeping and accounting in more detail.

Bookkeeping is the process of recording and organising your business’s day-to-day transactions. This includes everything from sales and payments to tracking receipts and invoices. Keeping everything neat and up-to-date makes it easier for you to handle tax filings and audits.

According to the Inland Revenue Ordinance (IRD), all Hong Kong companies must maintain proper accounting records for at least seven years. These records can be in English or Chinese and must include:

• Income and sales
• Business expenses
• Assets and liabilities
• Bank statements and invoices

Startups and SMEs in Hong Kong often use cloud-based services like Xero or QuickBooks to automate bookkeeping tasks and reduce human error. These tools sync transactions from your bank account, making it easier to reconcile payments and generate reports on demand. For larger businesses, hiring a dedicated bookkeeper may be necessary to maintain accuracy and compliance.

While bookkeeping records the daily transactions, accounting involves the interpretation, analysis, and reporting of financial data.

Accountants use bookkeeping data to prepare:

• Income statements (Profit and Loss)
• Balance sheet
• General Ledger
• Ageing reports and accounting schedules
• Cash flow statements

In Hong Kong, every limited company must prepare annual audited financial statements, signed by a licensed Hong Kong Certified Public Accountant (HKCPA) and submitted to the IRD each year.

When you get your financial records right, it not only helps with day-to-day operations but also prepares you for tax season.

H3: 1. Stay Compliant with Hong Kong Law

In Hong Kong, it’s mandatory to keep accurate financial records, prepare audited accounts, and file tax returns on time. Failing to do so can result in significant penalties, including:

• Up to HK$100,000 in fines for failing to keep proper records.
• Additional tax penalties up to three times the underpaid amount
• Rejection of offshore tax claims for incomplete documentation
• Criminal charges for deliberate tax evasion, with fines and possible imprisonment

Keeping your books straight and preparing your audited accounts on time also gives you a clearer financial picture to make smarter decisions for your business.

 2. Support Offshore Tax Exemption Claims

Hong Kong’s territorial tax system means you only pay tax on profits made within the region. If your business earns income from overseas, proper bookkeeping and record keeping of all documents is key to proving that the income should be exempt from local taxes.

For example, if you're exporting goods, you’ll need to keep contracts, shipping invoices, and payment receipts to show that the income is foreign-sourced. Without these, the IRD may challenge the offshore tax claims and tax them as Hong Kong-sourced income.

The simplest way to stay compliant is to work with a local accountant. They close your books on time, prepare statements, file the tax return, and handle IRD letters so deadlines are not missed.

Doing it yourself can look cheaper until gaps appear: bank accounts do not reconcile, foreign currency entries are off, or documents for offshore income are missing. Fixing that at year end is costly.

A hybrid model works when you want some control. Your team records sales and bills; your accountant reviews each month, prepares year-end, and files tax. If you trade across borders or use multiple currencies, hiring from day one is the safer choice. Either way, a local accountant keeps you compliant and lets you focus on the business.

Whether you handle accounting in-house or outsource, having the right tools in place can simplify your financial management. Statrys’ multi-currency business account streamlines bookkeeping, integrates with accounting software, and helps simplify financial management, allowing you to focus more on growing your business.