Commencement of Business

Every startup that operates or plans to start business operations in Hong Kong requires specific knowledge about its beginning date. A short explanation about the commencement of business follows below. Business operations begin on the day the company starts performing commercial activities. Business commencement days remain uncertain because activities typically trigger it after an organization starts legitimate business operations. New businesses need to understand the process of business commencement. This assists them in tax filing, annual reporting, and regulatory compliance.

Moreover, you can also avoid legal charges and penalties if you have the correct date for the commencement of business. Entrepreneurs unfamiliar with business regulations in Hong Kong should read this article until the end. This article is a step-by-step guide to determining the business commencement date in Hong Kong. By the end of this article, you will understand what commencement of business is, why it is important, and the common triggers.

What is Commencement of Business?

The commencement of business in Hong Kong is the date on which the company actually starts operations. It indicates that the business has transitioned from the preparation stage to the trading stage. It is not necessary that the date of incorporation be the business commencement date. Rather, it is identified by the factual evidence of business activities such as engaging in revenue generation or starting core operations of the business.

Some common activities trigger the commencement of business. Signing a contract for the sale of goods or receiving payment for services rendered can also mark the starting of business operations. Specific triggers for the business commencement date may vary depending on the type of business. However, the common triggers fall into four major categories- Financial Transactions, Operational Activities, Human Resources, and Expenses.

How do I know if I have commenced business?

The commencement of business may differ for various companies, but in general, it is a question of fact based on some evidence or event that has occurred. Below are some of the examples of business commencement:

• Issued or received company invoices
• Manufacturing of goods for manufacturer company
• Goods sale for the company
• Receipt of funds for provided services
• Purchase or transfer of assets
• Business contract of the company
• Employment of staff or hiring of freelance workers.
• Payment of salaries or remunerations
• Payment of company expenses, such as utilities or rent expenses
• Purchase of financial instruments for an investment company

These events may cause the company to commence business. Once the company has commenced business, it will need to file a form to inform the Hong Kong government of the start of business.

Common Triggers for Commencement of Business

The following details explain what typical operations lead to business startups in Hong Kong.

1. Financial Transactions

• Any time business entities enter into documents for selling goods or delivering services.
• Receiving payment for services rendered.
• The delivery of a first invoice represents one of the triggers that can initiate business operations with customers.
• When clients pay their business charges ahead of the delivery of services.
• A business must establish a separate transactional bank account as one of its startup requirements.

2. Operational Activities

• A website appears as an official platform for businesses to obtain orders from clients.
• The business obtains equipment or production materials for manufacturing operations.
• The establishment of an office space requires an office space lease agreement.
• The company enters into agreements with vendors and suppliers through contractual terms.
• A client receives their initial product from the organization as part of business operations.
• An organization that offers professional service solutions to its customers.

3. Human Resources (HR) Activities

• Hiring individuals for business operations.
• Issuing employment contracts.
• The company will establish systems to distribute employee salaries.
• The company provides training sessions and workshops to its workforce.

4. Business Expenses

• Paying rent for business premises.
• Paying supplies and vendors.
• Purchasing business insurance policies.
• Registering for various business licenses.

Notification of Commencement of Business in Hong Kong

Every business in Hong Kong is legally required to inform the Hong Kong government about the commencement of business. The business regulations in Hong Kong state that the company has to notify the Inland Revenue Department (IRD) of the commencement of business. The IRD needs to be notified within one month of the starting of business operations. If a company fails to notify the IRD, then the maximum penalty is HKD 5,000 and imprisonment for one year.
The notification of commencement of business to the IRD is a part of the Hong Kong company registration process. The fees to notify the IRD depend on the validity of the Business Registration Certificate (BRC). The information that needs to be provided to the IRD includes the nature of the business, description, address, and the date of commencement.

Process of Notification

• Complete the Form IRBR200 (Commencement Of Business).
• Submit the form to the Inland Revenue Department (IRD) in person or online.
• Submit the appropriate fee: HKD 2,200 for a 1-year certificate and HKD 5,720 for a 3-year certificate.

Why is Accurate Commencement Important?

Several determining factors make it essential to establish correct starting dates. These reasons are given below.

1. Regulatory Compliance

Business operations in compliance with Hong Kong business laws depend on precise start dates for companies. Every company must inform the Hong Kong government through its laws about its date of business commencement. The procedure ensures the government maintains accurate business documentation. Neglecting to inform government authorities about business commencement will result in financial penalties and potential legal consequences for a business.

2. Tax Obligations

A business starting date determines how Hong Kong tax obligations will be fulfilled. The business uses this date to determine which period marks the beginning of its tax liability. The exact start date allows businesses to maintain accurate documentation of expenses and income reporting before filing tax reports. Compliance with tax regulations in Hong Kong leads to penalty-free operations, which enables companies to allocate their funds towards business expansion.

3. Contractual Clarity

A precise definition of business onset determines how clearly contractual terms are defined. A precise definition of startup time lowers both operational disputes and contractual errors between businesses. Removing mistakes along with conflicts enhances market performance and business reputation.

4. Performance Tracking

Accurate commencement dates prove essential because they provide organizations with efficient monitoring systems for business performance tracking. Thanks to the correct business commencement date, business performance evaluation becomes easy for investors, auditors, and regulatory authorities. Additionally, businesses can make important changes through the evaluation process.

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