Hong Kong Company Audit Requirement: Who’s Exempt? Dormant, Zero-Revenue & Small Company Rules (2026 Update)
Yes — almost every Hong Kong company must be audited every year. Under the Companies Ordinance (Cap. 622, s.405), a statutory audit is mandatory for all companies regardless of size, turnover, or whether they traded at all. The only statutory exemption is dormant status: a qualified private company that passes a special resolution under section 5 and files it with the Companies Registry is exempt under section 447 from preparing audited financial statements. Crucially, the “small company” reporting exemption (simplified SME-FRS reporting for companies meeting 2 of 3 tests — revenue ≤ HK$100M, assets ≤ HK$100M, ≤ 100 employees) is NOT an audit exemption: small companies still need a full audit. Zero revenue or trading losses don’t exempt an active company either. Audited accounts also support your profits tax return (8.25% on the first HK$2M, 16.5% above), so the audit is rarely optional in practice.
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Last updated: May 2026
The Hong Kong company audit requirement at a glance
- Almost every Hong Kong company must be audited every year. Under the Companies Ordinance (Cap. 622), a statutory audit is mandatory for all companies regardless of size or turnover.
- There is only one real exemption: dormant status. A qualified private company that passes a special resolution under section 5 and delivers it to the Companies Registry is exempt under section 447 from preparing audited financial statements.
- Small does not mean exempt. The “reporting exemption” (simplified SME-FRS reporting) is not an audit exemption — small companies still need a full audit.
- Zero revenue does not mean exempt either. An active company with no income or trading losses must still be audited; only properly declared dormancy removes the audit.
- Small private company test: meet 2 of 3 — revenue ≤ HK$100M, total assets ≤ HK$100M, employees ≤ 100.
- The audited accounts feed your profits tax return (8.25% on the first HK$2M of profits, 16.5% above), so the audit is rarely optional in practice.
Do you need an audit for your Hong Kong company?
In almost all cases, yes. The Hong Kong company audit requirement under the Companies Ordinance (Cap. 622) applies to every incorporated company, regardless of how small it is, how much it earns, or whether it traded at all during the year. A Hong Kong CPA must independently audit your financial statements each financial year. The single statutory exception is a company that has been formally declared dormant: a qualified private company that passes a special resolution under section 5 and delivers it to the Companies Registry becomes exempt under section 447 from preparing audited financial statements. If you have not done that, the audit applies to you — even if your company is brand new, made no sales, or ran at a loss.
PAT CPA’s practical observation is that the most expensive mistake founders make is assuming “small company” or “no revenue” means “no audit.” It does not. The only thing that removes the audit is a correctly filed dormancy declaration — and dormancy comes with its own trade-offs.
Who is this article for?
- Founders who already run a Hong Kong company and want to know whether the annual audit really applies to them.
- Owners of a zero-revenue or loss-making company who suspect (incorrectly) that they can skip the audit.
- People holding an inactive company for a name, an asset, or a future project, who want to know whether dormancy is the right route.
If you have not formed your company yet, start by reading how to register your Hong Kong company first — this article assumes the company already exists and focuses only on the audit obligation that follows.
What the law says: the Hong Kong company audit requirement in Cap. 622
The audit obligation lives in Part 9 (Accounts and Audit) of Cap. 622. Section 405 requires a company’s financial statements to be audited, and the Companies Registry states plainly that audit “is still required for all companies, except dormant companies (section 447).” There is no carve-out for being small, new, or unprofitable.
| Situation | Audit still required? | Why |
|---|---|---|
| Active company, any size | Yes | Cap. 622 s.405 — audit mandatory for all companies |
| Small private company (within reporting exemption) | Yes | Reporting exemption = simplified reporting, not audit exemption |
| Zero revenue / loss-making but active | Yes | Activity status, not turnover, drives the audit |
| Company limited by guarantee | Yes | Same audit rule; only reporting may be simplified |
| Declared dormant (s.5 resolution filed) | No | s.447 exempts dormant companies from audited financial statements |
Is the “small company” reporting exemption the same as an audit exemption?
No — and this is the single most common misunderstanding. Cap. 622 lets qualifying companies prepare simplified financial statements under the SME-FRF and SME-FRS instead of full Hong Kong Financial Reporting Standards. That is the reporting exemption. It reduces disclosure (no “true and fair view” requirement, no business review, no auditor’s-remuneration disclosure) — but the resulting accounts still have to be audited.
A small private company (or group) qualifies automatically if it satisfies at least 2 of these 3 size tests:
- Total revenue not exceeding HK$100 million
- Total assets not exceeding HK$100 million
- No more than 100 employees
A larger “eligible” private company can also use simplified reporting at higher thresholds — revenue and total assets each not exceeding HK$200 million, no more than 100 employees — but only with approval from at least 75% of members and no member voting against. A small guarantee company (often a charity or club) qualifies where annual revenue does not exceed HK$25 million. In every one of these cases, the audit itself remains compulsory.
When is an audit genuinely not required?
Only when the company is dormant. Under section 5 of Cap. 622, a qualified private company becomes dormant by passing a special resolution declaring it will be dormant and authorising the directors to deliver that resolution to the Companies Registry. Once registered, section 447 exempts the company from:
- preparing audited financial statements;
- appointing (or removing) auditors;
- holding an annual general meeting; and
- filing an annual return.
A “dormant company” is one with no accounting transactions during the financial year. An accounting transaction is one that the company is required to record under section 373 — significantly, the modest government fees a company pays to stay registered are disregarded for this purpose. The catch: the moment the company enters into a single accounting transaction, the section 447 exemption stops applying from that date, and a member who knew of the transaction and every director can become personally liable for resulting debts (s.447(2)).
Quick checklist: does the audit apply to you?
- Is your company a Hong Kong incorporated company under Cap. 622? → audit applies unless dormant.
- Have you filed a section 5 dormancy resolution with the Companies Registry? → if no, the audit applies.
- Did the company have any accounting transaction this year (a sale, a purchase, a bank charge, a loan)? → if yes, it cannot be dormant, so the audit applies.
- Are you relying on “we’re small / made no money”? → that is the reporting exemption at best, not an audit exemption — the audit still applies.
“My company had zero revenue — surely I’m exempt?”
This is where founders most often get caught. Having no income is not the same as being dormant. An active company that simply did not trade, or that traded at a loss, still has a financial year, still has to prepare financial statements, and still has to have them audited. Bank interest, a single supplier invoice, or paying a service provider can all be accounting transactions that keep the company active.
There is also a tax layer to keep in mind. Being dormant under the Companies Ordinance does not automatically settle your position with the Inland Revenue Department (IRD). The IRD can still issue a profits tax return, and an active company will normally need its audited accounts to support that return. Profits tax is charged at 8.25% on the first HK$2 million of assessable profits and 16.5% on the balance under the two-tiered regime — so even a loss year usually has to be reported with audited figures.
Why do companies get the audit requirement wrong?
- Confusing reporting exemption with audit exemption. “Small company” wording in the law refers to simplified reporting, not skipping the audit.
- Assuming a new company is exempt in year one. The first financial year is audited like any other.
- Treating “no revenue” as “dormant.” Dormancy is a formal status that must be declared and registered; inactivity alone does not create it.
- Letting dormancy lapse silently. One accounting transaction ends the exemption, and back-dated audits then become necessary.
Which companies are most likely to run into trouble?
Holding companies and “parked” companies are the highest-risk group. Owners keep them to protect a brand name or hold an asset, assume nothing needs filing, and then discover that the company was never properly made dormant — so several years of audits and tax returns are outstanding. Companies with a single overseas director who rarely looks at Hong Kong filings are similarly exposed. The fix is almost always cheaper if caught early.
Before your financial year-end: a final self-check
- Confirm your financial year-end date and that bookkeeping is current.
- Decide early whether you genuinely qualify for, and want, dormant status — the resolution should be filed before transactions accumulate.
- If active, appoint an independent CPA auditor in good time; auditors must be registered with the AFRC / hold an HKICPA practising certificate.
- Line up the audited accounts ahead of any IRD profits tax return deadline.
When should you bring in a professional team?
If you are unsure whether your company counts as active or dormant, whether you qualify for simplified reporting, or you have unfiled years to clean up, it is worth getting advice before deadlines bite. PAT CPA handles statutory audits and the related tax filing end to end. The firm is led by Tommy Chan, CPA (Practising) — HKICPA membership P06975, Fellow F08355, Corporate Practice S0395.
Official sources
- Companies Registry — Companies Ordinance (Cap. 622), Accounts and Audit: https://www.cr.gov.hk/en/legislation/companies-ordinance/cap622/keychanges/account-audit.htm
- Companies Registry — FAQ on Accounts and Audit: https://www.cr.gov.hk/en/faq/companies-ordinance/co-account-audit.htm
- Inland Revenue Department — Profits Tax: https://www.ird.gov.hk/eng/tax/bus_pft.htm
Frequently asked questions
Does every Hong Kong company audit requirement apply even to a tiny company?
Yes. The Hong Kong company audit requirement applies to all companies under Cap. 622 regardless of size. Being small only lets you use simplified SME-FRS reporting; it does not remove the audit.
Is there any way around the Hong Kong company audit requirement?
The only statutory exemption is dormant status. A qualified private company passes a special resolution under section 5 and files it with the Companies Registry; section 447 then exempts it from audited financial statements until it has an accounting transaction.
My company had no revenue this year — do I still need an audit?
Yes, if the company is still active. Zero revenue or a loss does not exempt you; only formally declared dormancy does. An active company must prepare and audit financial statements every financial year.
What is the difference between the reporting exemption and an audit exemption?
The reporting exemption lets qualifying small companies prepare simplified financial statements under SME-FRF/FRS. It reduces disclosure but does not waive the audit. An audit exemption only exists for dormant companies.
What are the small company size thresholds?
A small private company must meet 2 of 3 tests: total revenue ≤ HK$100 million, total assets ≤ HK$100 million, and no more than 100 employees. A small guarantee company qualifies where revenue does not exceed HK$25 million.
Does being dormant also exempt me from profits tax?
Not automatically. Companies Ordinance dormancy is separate from the IRD’s position. The IRD may still issue a profits tax return, so check your tax status separately even after declaring dormancy.
Who can audit a Hong Kong company?
Only an independent practising CPA registered with the AFRC and holding an HKICPA practising certificate can sign a Hong Kong statutory audit. The company’s own bookkeeper cannot perform the audit.
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