Hong Kong accounting record retention: 7-year requirement under the Companies Ordinance

Hong Kong Accounting Record Retention 7 Years: The Statutory Duty Under Cap. 622

Every Hong Kong company must keep accounting records that sufficiently explain its transactions and enable its financial position to be determined with reasonable accuracy. Retain them for 7 years. This is the core requirement, measured from the date of the transaction or the end of the financial year to which they relate, whichever is later. The obligation is set out in the Companies Ordinance (Cap. 622), section 373. It applies to all companies incorporated in Hong Kong, trading, dormant, or in the process of winding up.

The 7-year retention period is a minimum. The Inland Revenue Department (IRD) may require records to be kept for longer if a tax assessment is under review or if the company has not yet filed its profits tax return. Treat the 7-year rule as the floor, not the ceiling.

Cap. 622 Accounting Records Retention Period

Section 373 of the Companies Ordinance (Cap. 622) imposes the primary statutory duty. The section requires that a company’s accounting records be kept for 7 years after the completion of the transactions to which they relate or after the end of the financial year in which those transactions were completed, whichever is later.

Records must be sufficient to show and explain the company’s transactions. They must disclose, with reasonable accuracy, the financial position of the company at any time. They must also enable the directors to ensure that any financial statements prepared under the Ordinance comply with the applicable accounting standards.

The 7-year period applies to the original records or copies of them. A company that destroys records before the period expires commits an offence under section 373(5). Each director and the company secretary may be held personally liable.

Hong Kong Company Records Storage Requirements

Keep accounting records at the company’s registered office or at a prescribed place in Hong Kong. If the records are kept at a place other than the registered office, notify the Companies Registry of the address where the records are held.

A “prescribed place” is any location in Hong Kong that the directors consider appropriate. The records must be accessible for inspection by the directors at all times. If the records are kept outside Hong Kong, the company must still maintain records in Hong Kong that are adequate to enable the preparation of financial statements that give a true and fair view.

Records must be in hard copy or in a form that can be reproduced in hard copy within a reasonable time. Electronic storage is permitted, provided the records are backed up and can be retrieved without alteration.

Hong Kong Accounting Records Penalty

Failure to keep accounting records for the required 7-year period is an offence under section 373(5) of the Companies Ordinance. Every director and the company secretary who is in default commits an offence and is liable on conviction to a fine of HK$300,000 and to imprisonment for 12 months.

The penalty applies to each person who was responsible for ensuring compliance. A director cannot avoid liability by delegating the task to a company secretary or an external accountant unless the director can show that they took all reasonable steps to ensure compliance.

The Companies Registry may also refer cases of non-compliance to the police or the Commercial Crime Bureau. The Registry will first issue a warning letter. Persistent failure to keep records can lead to prosecution.

Hong Kong Companies Ordinance Section 373 Records

Section 373 of the Companies Ordinance (Cap. 622) is the central provision governing accounting record retention. It applies to every company incorporated in Hong Kong, including private companies limited by shares, public companies, and unlimited companies.

The records that must be kept include:

• Daily records of all sums of money received and expended, with details of the matters in respect of which the receipt and expenditure took place.
• A record of the assets and liabilities of the company.
• Statements of stock held by the company at the end of each financial year.
• Statements of stocktakings to which any statement of stock relates.
• Records of all goods sold and purchased, identifying the goods, the buyers and sellers, and the relevant invoices.

Section 373 also requires that the records be kept in a form that enables them to be audited. The auditor must be able to verify the records against the financial statements. If the records are inadequate, the auditor must qualify the audit report.

Where Accounting Records Must Be Kept

The registered office is the default location. If the company chooses to keep records at a different address in Hong Kong, it must file a notice with the Companies Registry using the prescribed form. The address must be a physical location in Hong Kong; a post office box is not acceptable.

Records must be available for inspection by the directors at any time. If a director requests access and the company fails to provide it, the director may apply to the court for an order compelling the company to produce the records.

For companies that maintain records outside Hong Kong, the Ordinance requires that records be kept in Hong Kong that are sufficient to enable the preparation of financial statements that comply with the Ordinance. A company cannot rely solely on records held overseas.

Interplay with Inland Revenue Department Record-Keeping Rules

The IRD has its own record-keeping requirements under the Inland Revenue Ordinance (Cap. 112). For profits tax purposes, a company must keep records of its income and expenditure for at least 7 years after the end of the year of assessment to which they relate. This period runs concurrently with the Companies Ordinance requirement but may extend beyond it if the IRD issues a notice requiring records to be kept for a longer period.

The IRD can impose penalties for failure to keep adequate records. The penalty is a fine of up to HK$100,000 and an additional penalty of up to HK$10,000 for each month the failure continues. The IRD may also estimate the company’s profits and issue an assessment based on that estimate if records are inadequate.

A company that has destroyed records after the 7-year period under Cap.622 but before the IRD has completed a tax audit may still face penalties under the Inland Revenue Ordinance. Retain records until the IRD has confirmed that no further tax assessments will be raised.

Consequences of Destruction Before the 7-Year Period

Destroying accounting records before the 7-year period expires is a criminal offence under section 373(5). The offence is one of strict liability. The prosecution does not need to prove intent. A director who authorised the destruction or who failed to prevent it may be prosecuted.

In addition to the criminal penalty, the company may face civil consequences. If the company is unable to produce records during a tax audit or a legal dispute, the court or the IRD may draw adverse inferences against the company. The company may also be unable to defend itself against claims by creditors or shareholders if the records are missing.

The destruction of records may also affect the company’s ability to complete its annual audit. The auditor will be unable to issue an unqualified audit opinion if the records are incomplete, and the company may be unable to file its financial statements with the Companies Registry.

Records Required for Deregistration and Liquidation

When a company applies for deregistration or enters liquidation, the accounting records must be preserved. The Companies Registry will not approve a deregistration application unless the company has filed all outstanding annual returns and financial statements. The IRD will also require that all profits tax returns have been filed and that no outstanding tax liabilities exist.

During liquidation, the liquidator has a duty to take custody of the company’s accounting records. The liquidator must retain the records for at least 7 years after the dissolution of the company. If the records are destroyed before that period expires, the liquidator may be personally liable.

A company that is struck off the register without going through formal deregistration may still be required to produce records if the Registrar restores the company to the register. The 7-year retention period applies even if the company has been struck off.

Practical Steps for Compliance

Implement a record retention policy that ensures compliance with section 373. The policy should specify:

• The types of records that must be retained.
• The retention period for each type of record.
• The location where records will be stored.
• The procedure for disposing of records after the retention period expires.
• The person responsible for ensuring compliance.

The policy should also address electronic records. If records are stored electronically, the company must ensure that the storage system is secure, that backups are made regularly, and that the records can be retrieved in a readable format.

Review the company’s record retention practices annually. Confirm that all records for the current financial year are being kept and that records from previous years have not been prematurely destroyed.