What is simplified financial reporting (the reporting exemption) for Hong Kong SMEs?
It lets qualifying companies prepare simpler financial statements and directors' reports. Such a company need not give a true and fair view, can omit the directors' business review, and may omit some director-related disclosures. It does not remove the audit requirement.
Sections 359 to 366 and Schedule 3 of the Companies Ordinance let qualifying companies fall "within the reporting exemption".
What changes for an exempt company
- The financial statements need not give a true and fair view (s.380(7)); they follow Part 1 of Schedule 4 and the applicable accounting standard (in practice usually the SME framework).
- The directors' report needs no business review (s.388(3)) and may omit several items.
- The notes need not disclose directors' material interests in significant transactions.
What does not change
- The company must still keep proper records and prepare financial statements.
- Audit is still required for all companies except dormant companies, according to the Companies Registry.
Who qualifies
- Small private companies (two of three tests: revenue, total assets, employees).
- Small guarantee companies.
- Larger "eligible" private companies with members' approval.
- Private companies with no subsidiary and no holding company, if all members agree in writing for that year.
- Holding companies of qualifying groups.
- Not available to banks, licensed securities corporations, insurers, and money-lending or deposit-taking businesses (s.359(4)).
Legal basis
- Companies Ordinance (Cap. 622), ss.359-366, 380(7), 388(3)
Sources
Applies to 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- Is a Hong Kong company legally required to keep accounting records?Yes. Section 373 of the Companies Ordinance (Cap. 622) requires every company to keep accounting records that explain its transactions and show its financial position and performance at any time. Directors who fail to take all reasonable steps risk a fine of HK$300,000, and up to 12 months' jail if the failure is wilful.
- How long must a Hong Kong company keep its accounting records?Seven years. Under section 377 of the Companies Ordinance, a company must keep its accounting records for 7 years after the end of the financial year to which the last entry relates. The Inland Revenue Department separately requires business records to be kept at least 7 years after the transactions they relate to.
- What does section 51C of the Inland Revenue Ordinance require from my business?Anyone carrying on a trade, profession or business in Hong Kong must keep enough records, in English or Chinese, to work out assessable profits, and keep them for at least 7 years. Failing to do so without reasonable excuse can lead to a fine of up to HK$100,000.
- Which documents should a Hong Kong business keep for its books?Keep every document that supports an entry in your books: sales and purchase invoices, receipts, bank statements, contracts, payroll and MPF records, asset purchase papers, loan agreements, and stocktake sheets. The test is whether someone else could trace any figure back to its source.
- Can a Hong Kong company keep its accounting records digitally or scan paper originals?Yes. The Companies Ordinance allows records in hard copy or electronic form, provided they stay available for reference and can be reproduced on paper. The IRD also accepts electronic books and scanned source documents if integrity, legibility and origin details are preserved, and no prior approval is needed.