Does Hong Kong have a small-company audit exemption?
No. This is the most common myth founders carry into Hong Kong, usually from the UK or Singapore, where a small company can skip the audit if it stays under set size limits. Hong Kong does not work that way.
Under the Companies Ordinance (Cap. 622), almost every company incorporated in Hong Kong must prepare annual financial statements and have them audited by a Hong Kong CPA who holds a practising certificate. Size does not change this. A company with one director, one customer, and HK$2 million in revenue faces the same audit rule as a company turning over HK$200 million. Section 405 of the Ordinance says the financial statements must be audited, and the Companies Registry states that audit of the financial statements is still required for all companies, except dormant companies.
There is one genuine exception, plus a separate concession that gets confused with an exemption. We will cover both, because mixing them up is how founders end up filing late and paying penalties.
The only true audit exemption: dormant companies
The one legal way to skip the audit is to make your company dormant.
Dormant is a specific legal status, not a description of a quiet quarter. A company is dormant when it has no accounting transactions, which broadly means no entries the law requires it to record in its accounting records. Paying a statutory fee, like the annual business registration fee, does not break dormancy. Almost anything else does: a single invoice, a bank charge, a salary payment, even a small purchase.
To become dormant, a private company passes a special resolution declaring itself dormant and delivers that resolution to the Companies Registry. From that point the company is exempt from preparing audited financial statements, appointing an auditor, holding an annual general meeting, and filing an annual return. The audit exemption for dormant companies sits in section 447 of the Ordinance. The rules for becoming dormant sit in section 5.
Three things matter here. First, the exemption ends the moment the company enters into an accounting transaction, from the date that transaction happens. You do not get to file dormant accounts for a year in which you quietly ran a few transactions. Second, banks, insurers, and licensed securities firms cannot use dormant status at all. Third, dormant does not mean zero filings. The company must still keep its registered office, directors, and company secretary details current with the Registrar, renew its business registration with the Inland Revenue Department each year, and answer any profits tax return the IRD issues.
For most e-commerce founders this exemption is beside the point, because an active store is the opposite of dormant. Dormancy suits a holding shell you have parked, or a company you set up and never traded through. If your Stripe account is live, you are not dormant.
What the reporting exemption actually is
Here is the concession that trips people up. The Companies Ordinance has a reporting exemption under section 359. It sounds like it lets small companies off the hook. It does not exempt anyone from the audit.
What the reporting exemption does is let qualifying small companies prepare simplified financial statements using the SME-FRF and SME-FRS (the Small and Medium-sized Entity Financial Reporting Framework and Standard) instead of full Hong Kong Financial Reporting Standards. It cuts the disclosures and the work, which usually means a cheaper, faster audit. But the accounts are still audited by a CPA. The exemption is about how much you report, not whether you get audited.
The directors' report is also simplified, and there is no requirement for the financial statements to give a true and fair view under this framework. That is the technical reason the standard can be lighter.
Who qualifies for the reporting exemption
A small private company qualifies if, for the financial year, it meets at least two of these three conditions.
| Condition | Threshold for a small private company |
|---|---|
| Total annual revenue | Not more than HK$100 million |
| Total assets at year end | Not more than HK$100 million |
| Average number of employees | Not more than 100 |
A holding company of a group can qualify as a small group if the group meets two of the same three tests on an aggregate basis.
The Ordinance allows two other routes. A private company that is too big for the small-company test can still opt into the reporting exemption as an eligible private company if members holding at least 75% of the voting rights agree and no member votes against. And a small guarantee company, or a group of them, qualifies on a single test: total revenue not more than HK$25 million.
Some company types are shut out of the reporting exemption no matter their size: banks and deposit-taking companies, insurers, and corporations licensed under the Securities and Futures Ordinance. None of this removes the audit. It only changes the reporting standard.
Why the audit is also a tax requirement
Even if you somehow ignored the Companies Ordinance, the Inland Revenue Department would still pull you back.
When a Hong Kong company files its Profits Tax Return, it must attach supporting documents. These include the audited financial statements and the auditor's report, plus a tax computation. The IRD has long required larger corporations to attach audited accounts. From 1 April 2023, the start of the 2023/24 year of assessment, it also removed the concession that let small corporations, those with gross income not over HK$2 million, file the return without these documents. So the audited accounts you prepare for company-law purposes are the same accounts that support your tax filing. One audit, two jobs.
The practical effect: the audit is not optional paperwork you can defer. It is the document that lets you file your profits tax return correctly and on time. Skip it and you are exposed on both the company-law side and the tax side. For the filing dates themselves, see our guide to Hong Kong tax deadlines.
Who can actually sign the audit
Not just any accountant. A Hong Kong statutory audit must be done and signed by a CPA (Practising) or a registered CPA firm. Since 1 October 2022, practising certificates and the registration of auditors are handled by the Accounting and Financial Reporting Council (AFRC), which took over that role from the Hong Kong Institute of Certified Public Accountants (HKICPA). Your bookkeeper cannot sign it. An overseas accountant cannot sign it. It has to be a Hong Kong practising CPA.
This is worth knowing when you compare audit quotes. A cheap quote from an unregistered party is worthless, because the IRD and the Companies Registry will not accept the report. Our guide on how to choose an audit firm in Hong Kong goes deeper.
How this compares to the UK and Singapore
The contrast explains why the myth is so sticky.
| Jurisdiction | Small-company audit exemption? | What small companies get |
|---|---|---|
| Hong Kong | No | Reporting exemption: simpler accounting standard, audit still required |
| United Kingdom | Yes | Qualifying small companies can be exempt from audit entirely |
| Singapore | Yes | A small company that meets the size tests is exempt from audit |
If you have run a UK Ltd or a Singapore Pte Ltd, your instinct is that staying small means no audit. In Hong Kong, staying small only means a lighter audit, not no audit. The wider tax picture is different too, which we cover in Hong Kong versus Singapore.
What this means for an e-commerce founder
If you run a paid-traffic store or a marketplace brand through a Hong Kong company, plan for an annual audit every year you trade. Budget for it, and keep clean records so the audit is cheap rather than painful. The single biggest driver of a high audit fee is messy books: missing Stripe and PayPal reconciliations, no clear cut-off, and a pile of receipts handed over after year end.
At HQ CFO we keep the books audit-ready through the year and run the audit and the profits tax filing as one process, so you are not chasing an auditor in month eleven. The aim is simple: no surprises at year end, and a return the IRD accepts the first time.
One last point on dormancy. Some founders ask whether they can flip a trading company to dormant to dodge an audit. You can make a company dormant, but only by genuinely stopping all accounting transactions and filing the resolution. You cannot trade and claim dormancy. For an active brand, the honest answer is that the audit is part of the cost of operating in Hong Kong. The upside is that audited Hong Kong accounts carry weight with banks, payment processors, and acquirers, which is the credibility a growing brand wants.
This article is general information about Hong Kong company-law and tax filing rules. It is not tax or legal advice for your specific company. Whether your entity is dormant, qualifies for the reporting exemption, or is excluded under section 359, depends on its own facts. Confirm your position with a Hong Kong practising CPA before you act.