Hong Kong Record Keeping: 7-Year Rule and Digital Compliance

Under Section 51C of the Inland Revenue Ordinance, every Hong Kong business must retain its business records for a minimum of 7 years. Non-compliance carries fines up to HK$100,000. The Electronic Transactions Ordinance (Cap. 553) grants digital records the same legal standing as paper, meaning businesses can scan invoices and store them electronically.

This guide breaks down exactly what you need to know about Hong Kong business record keeping requirements:

• Which records you must keep and for how long under the Inland Revenue Ordinance and the Companies Ordinance
• Whether digital scans can legally replace paper originals, with direct reference to IRD guidance and the Electronic Transactions Ordinance
• A practical workflow for digitizing 7 years of business records, from scanning standards to folder structures
• The real penalties for non-compliance, including how the Inland Revenue Department (IRD) uses estimated assessments when records are missing

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What Records Must Hong Kong Businesses Keep and for How Long?

Two separate statutes govern business record keeping in Hong Kong: the Inland Revenue Ordinance (Cap. 112) and the Companies Ordinance (Cap. 622). Both impose a 7-year retention period, but each calculates that window differently. Understanding both is essential for full compliance.

Inland Revenue Ordinance: Section 51C

Under Section 51C of the Inland Revenue Ordinance, every person carrying on a business in Hong Kong must keep sufficient records, in English or Chinese, to enable the Commissioner of Inland Revenue to readily ascertain assessable profits. The retention period is a minimum of 7 years from the date of the transaction.

The records required under Section 51C include:

• Books of accounts (general ledger, journals, cash books)
• Invoices issued and received
• Receipts for all business expenditures
• Bank statements and reconciliations
• Contracts and agreements
• Payroll records (salaries, wages, MPF contributions)

Trading businesses carry additional obligations: you must retain purchase and sales records along with stock statements that account for inventory movements. Service businesses must maintain detailed service records sufficient for the Commissioner to verify the nature and value of services rendered. If your records cannot support the figures in your profits tax return, you risk the Commissioner issuing an estimated assessment during an audit. For guidance on what that process looks like in practice, see our article on preparing for an IRD tax audit.

Companies Ordinance: Cap. 622

The Companies Ordinance (Cap. 622) requires every Hong Kong-incorporated company to keep accounting records sufficient to show and explain its transactions. These records must be stored at the company's registered office or at another location within Hong Kong that the directors have approved.

The retention period under Cap. 622 is 7 years after the end of the financial year to which the records relate.

This distinction matters. The IRO counts 7 years from the transaction date itself, while the Companies Ordinance counts 7 years from the close of the financial year containing that transaction. A transaction occurring in April of a given financial year could require retention for nearly 8 calendar years under the Companies Ordinance, compared to exactly 7 under the IRO. The practical implication: if you comply with the Companies Ordinance timeline, you will generally satisfy the IRO requirement as well, but not always the reverse.

Across both statutes, the core record types overlap significantly: invoices, receipts, bank statements, contracts, payroll records, and (for trading businesses) purchase and sales records plus stock statements. The practical difference between the two laws is the retention window, not what you keep. But both leave a critical question unanswered: in what format? Specifically, can you scan your paper invoices and receipts, store them digitally, and dispose of the originals?

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Can You Replace Paper Invoices with Digital Scans?

Yes. Hong Kong businesses can legally replace paper invoices with digital scans, and two pieces of legislation confirm it.

The first is the Electronic Transactions Ordinance (Cap. 553), enacted in 2000 and most recently updated in 2024. This ordinance establishes that electronic records carry the same legal status as their paper equivalents. It is the foundational legal basis for digital record keeping in Hong Kong, and it applies broadly across commercial and regulatory contexts, not just tax.

The second is IRD Pamphlet 60, titled "Admissibility of Business Records Kept in Electronic Form." This is the Inland Revenue Department's authoritative guidance on the subject, and it goes further than the ordinance by spelling out exactly what the IRD expects. Pamphlet 60 confirms that the IRD explicitly accepts scanned images stored on CD-ROM, DVD-ROM, and USB drives as substitutes for paper originals. To be compliant, your electronic records must meet four requirements:

1. Readable - records must be legible and reproducible on screen or in print
2. Retrievable - you must be able to locate and produce any record on request
3. Complete - every transaction must be captured with no gaps in the record chain
4. Unaltered - records must be stored in a way that prevents modification after capture

If your digital records satisfy these four conditions, you can dispose of the paper originals.

Despite this clear legal framework, most Hong Kong businesses have not taken advantage of it. According to the Hong Kong Productivity Council's Enterprise Digitalisation Index Survey of 508 local enterprises, Hong Kong's overall enterprise digitalisation score stands at just 35.9 out of 100, with SMEs scoring even lower at 33.9, trailing large enterprises by 18.5 points. The legal permission to go digital has existed for over two decades, yet the majority of businesses, particularly smaller firms, still rely on filing cabinets and paper archives for their financial records.

Hong Kong is not an outlier in accepting digital records. Other major tax authorities have reached the same conclusion. The United States permits electronic storage under its IRS electronic invoice storage requirements, and Canada's CRA electronic record keeping rules similarly allow businesses to maintain digital copies in place of paper originals. The global direction is consistent: paper-only retention is no longer a regulatory requirement.

The legal permission is clear. What follows is a practical workflow for turning that permission into a functioning digital archive.

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How to Digitize 7 Years of Business Records

Deciding to go digital is the first step. The harder part is executing the transition without losing records, missing categories, or creating a filing system that falls apart under audit scrutiny. The following workflow breaks the process into concrete stages, from initial assessment through to secure long-term storage.

Step 1: Audit Your Existing Paper Records

Before scanning anything, take stock of what you have. Walk through your physical filing cabinets, storage boxes, and desk drawers to catalog the paper records currently on hand. Sort them into categories:

• Invoices (sales and purchase)
• Receipts and payment vouchers
• Bank statements and deposit slips
• Contracts and agreements
• Payroll records and MPF contribution statements
• General ledger printouts and journal entries

For each category, note the date range covered. Your immediate priority is the most recent seven years of records, since those fall within the IRD's mandatory retention window. Older documents may still have value for ongoing disputes or long-term contracts, but they are secondary.

This audit also reveals gaps. Missing months of bank statements, lost supplier invoices, and incomplete payroll files are easier to address now than during an IRD field audit. Request duplicates from banks, vendors, and service providers before the originals become harder to trace.

Step 2: Scan and Capture Physical Documents

With your records cataloged, begin converting paper to digital files. A dedicated document scanner with an automatic document feeder handles this work far more efficiently than a flatbed scanner or phone camera, particularly for multi-page invoices and stapled receipts.

For each document, verify that the resulting scan is legible. IRD Pamphlet 60 requires that records be "readable," which means faded thermal receipts, coffee-stained invoices, and crumpled petty cash slips all need scans clear enough for an assessor to verify the figures. Rescan anything that comes out blurry or partially cut off.

If you are transitioning to paperless invoice processing for the first time, expect the initial backlog to be the most time-consuming phase. A business with seven years of accumulated paper records may be looking at thousands of individual documents. For backlogs of this scale, batch processing tools that handle large volumes of mixed-format files in a single job are far more practical than feeding pages through a scanner one at a time.

Step 3: Extract and Structure the Data

Scanning converts paper into image files. That alone is not enough. An image of an invoice is no more searchable than the paper original sitting in a box. For your digital records to be genuinely useful during daily operations or an IRD audit, the data within those scanned documents needs to be extracted into structured, searchable formats.

This is where AI-powered invoice data extraction tools convert scanned invoices into organized spreadsheets. Rather than manually keying figures from each scanned image into Excel, extraction software reads the document, identifies fields like supplier name, invoice number, date, line items, and totals, then outputs the data in structured Excel, CSV, or JSON format. For a business facing thousands of accumulated invoices in mixed formats and languages, platforms like Invoice Data Extraction can process batches of up to 6,000 files (PDF, JPG, PNG) in a single job at 1 to 8 seconds per page, with built-in support for both English and Chinese documents, directly addressing Section 51C's bilingual record-keeping provision.

The difference between a folder of scanned images and a structured spreadsheet of extracted data is the difference between compliance on paper and compliance in practice. When an IRD assessor asks you to produce all purchase invoices from a specific vendor over a two-year period, a searchable spreadsheet with every row traceable to its source document delivers that answer in seconds. A folder of 4,000 scanned PDFs does not.

Step 4: Organize with a Consistent Naming and Folder Structure

A clear, predictable filing structure is what makes seven years of records retrievable rather than merely stored. Build your folder hierarchy around the dimensions an auditor would use to locate a record:

Business Records

• 2025
  • Invoices (with monthly subfolders: 01-January, 02-February, etc.)
  • Receipts
  • Bank Statements
  • Contracts
  • Payroll
• 2024 (same structure)
• ...through to 2019

Within each monthly folder, use a consistent file naming convention that front-loads the most useful information:

YYYY-MM-DD_VendorName_InvoiceNumber.pdf

For example: 2025-06-15_ABC-Trading_INV-2025-0847.pdf

This format means files sort chronologically by default, and any record can be located by date, vendor, or invoice number without opening the file. When an assessor requests "all invoices from ABC Trading between March and September 2024," you navigate directly to the relevant folders and filter by filename.

Step 5: Back Up and Secure Your Digital Records

Digital records that exist in only one location are not compliant. IRD Pamphlet 60 requires records to be both "retrievable" and "complete," which means a hard drive failure, ransomware attack, or accidental deletion cannot be your excuse for missing documentation.

Maintain at least two copies of all digitized records in physically separate locations:

• Primary copy: Cloud storage with encryption (AES-256 at rest, TLS in transit)
• Secondary copy: External hard drive or NAS device stored off-site, updated monthly

Test your backup recovery process at least once per year. A backup you have never restored is a backup you cannot rely on.

With your records digitized, extracted, and organized in a consistent structure, you have a compliant archive that serves both daily operations and audit scenarios.

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Penalties for Non-Compliance and IRD Estimated Assessments

Failing to maintain adequate business records in Hong Kong carries two distinct consequences, and the second is where most businesses get hurt.

The statutory fine is straightforward. Under Section 51C of the Inland Revenue Ordinance, any person carrying on a trade, profession, or business in Hong Kong who fails to keep sufficient records for the required 7-year retention period is liable to a fine of up to HK$100,000. This applies unless the taxpayer can demonstrate a reasonable excuse for the failure, such as destruction of records by fire, flood, or theft. Carelessness or lack of storage space does not qualify. Separately, the Companies Ordinance (Cap. 622) imposes its own penalty of up to HK$100,000 for failure to keep adequate accounting records, meaning incorporated businesses face potential exposure under both statutes.

The estimated assessment is where the real financial damage occurs. When the Inland Revenue Department conducts an audit and finds your records insufficient, they do not simply accept your reported figures. The IRD has broad powers to assess your profits using alternative methods, including:

• Changes in your assets over the assessment period
• Bank deposit analysis, where total deposits are treated as potential income
• Comparison with similar businesses in the same industry and size bracket

These reconstructed figures almost always produce a higher tax bill than properly maintained records would support. The IRD estimates conservatively from the government's perspective, not yours. When your bank deposits include loan proceeds, transfers between personal and business accounts, or funds held on behalf of third parties, the burden falls on you to prove those amounts are non-taxable. Without original invoices, receipts, and supporting documentation, you cannot.

Consider a practical example: a trading company discards purchase invoices and expense receipts after three years instead of retaining them for seven. During a field audit covering the previous six years, the IRD finds no supporting documentation for years four through six. They reconstruct the company's income from bank records, treating unexplained deposits as assessable profits. The resulting tax liability could be significantly higher than what the company actually earned, because legitimate business expenses and non-income deposits cannot be substantiated without the original records.

This is the critical point that many Hong Kong businesses overlook. The HK$100,000 fine gets the attention, but the estimated assessment is what damages your bottom line. A single audit covering multiple years with reconstructed income can produce a tax bill that dwarfs the statutory penalty.

Both consequences are avoidable. Businesses that maintain organized, complete records for the full 7-year period, whether paper or properly digitized, face neither the fine nor the risk of inflated assessments. The investment required to set up a compliant record-keeping system is a fraction of what a single estimated assessment can cost.

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Next Steps for Hong Kong Record-Keeping Compliance

Hong Kong's record-keeping requirements are well-defined. Both the Inland Revenue Ordinance and the Companies Ordinance mandate 7 years of retention, and the Electronic Transactions Ordinance confirms that digital records carry the same legal weight as paper originals. The rules are clear. The question is whether your current processes actually meet them.

Use this checklist to assess and close any gaps:

1. Confirm all required record types are being retained. This includes sales and purchase invoices, receipts, bank statements, contracts, payroll records, and - for trading businesses - detailed purchase and sales records that trace the movement of goods.

2. Verify your retention periods cover the full 7 years. Under the IRO, the clock starts from the date of the transaction. Under the Companies Ordinance, it runs 7 years from the end of the relevant financial year. Track both windows for each record category.

3. If storing records digitally, confirm they meet IRD Pamphlet 60's four requirements. Every digital record must be readable, retrievable, complete, and unaltered. If your scanned invoices are buried in unsearchable image folders or stored in proprietary formats you cannot readily open, they fail this test.

4. Implement a consistent naming convention and folder structure. A logical hierarchy organized by financial year, record type, and date makes retrieval during an IRD audit a matter of minutes rather than days. Define the convention once and enforce it across all staff who handle documents.

5. Maintain backup copies in at least two separate locations. A single hard drive or a lone cloud account is not sufficient. Use a combination of local and cloud storage, or two independent cloud services, to protect against data loss.

6. Review records annually to confirm nothing has been prematurely discarded. Set a calendar reminder at each financial year-end to verify that the oldest records still within the 7-year window remain intact and accessible.

Businesses that invest in organizing their records now avoid the HK$100,000 fine under the IRO, reduce the risk of unfavorable estimated assessments where the IRD determines your tax liability without your input, and spend far less time and stress if selected for audit. Structured, accessible records are not just a compliance obligation. They are the most practical form of audit insurance available to any Hong Kong business.