Intercompany Balances and Related-Party Transactions for Small Hong Kong Groups

By Di Ma, Project Manager 29 OCT 2026 · 5 MIN READ

Many Hong Kong business owners have more than one company: a trading company and a company that holds the property, a Hong Kong company and one in the mainland, a new venture alongside the old one. Money moves between them all the time. One pays the other's rent, lends it cash for a quiet month, shares staff and an office. Each of those movements creates a balance between the companies, and those balances are where small groups' books most often go wrong.

Who counts as related

For bookkeeping, the practical test is simple: companies with the same owners or directors, and the people behind them. Your accounts may define it more precisely for disclosure, and the tax rules use their own tests, such as connected entities for the two-tiered profits tax rates and associated persons for transfer pricing. The bookkeeping principles are the same in every case.

The golden rule: both sides must agree

Every movement between two companies is booked twice, once in each company's books, in opposite directions. What one company is owed, the other owes.

Company A pays a HK$5,000 bill for Company B (illustrative)
In	Entry
Company A's books	Dr Amount due from Company B 5,000 Cr Bank 5,000
Company B's books	Dr Expense 5,000 Cr Amount due to Company A 5,000

Illustration with invented figures: Company A, a trading company, shows an amount due from Company B of HKD 65,000 among its assets; Company B, a property company, shows an amount due to Company A of HKD 65,000 among its liabilities. A note says to agree the two balances every month; if A shows 65,000 due from B but B shows 60,000 due to A, something has been booked on one side only. — Intercompany balances mirror each other: HK$65,000 due from B in A's books, HK$65,000 due to A in B's books.

Common intercompany transactions

Paying each other's bills. Company A pays a supplier for Company B. A records an amount due from B; B records the expense and an amount due to A. Keep the invoice in the books of the company it belongs to.
Recharges. Shared office, staff or software paid by one company and recharged to the others. Agree the basis, such as floor area, headcount or time spent, and invoice it regularly, ideally monthly.
Loans. Cash lent from one company to another. Put the terms in writing: amount, interest (if any), and when it's to be repaid.
Sales of goods or services between the companies, invoiced like any other sale.
Money through a director. When a director moves money between companies personally, it goes through each company's director's current account, not straight from one company to the other.

Keeping them right

One account per related company: "Amount due from Company B", "Amount due to Company C". Never mix them into trade receivables or a general "related parties" account (see the chart of accounts).
Agree the balances every month. Each company's balance with the other should be the same amount on opposite sides. A difference means something is booked on one side only.
Watch currencies. If the companies keep their books in different currencies, the balances differ by exchange rates. Agree them in the currency of the transaction.
Settle periodically. Balances that only ever grow look like loans, and need to be treated as loans.
Document it: recharge calculations, loan agreements and board approvals.

What the auditor and the accounts need

Disclosure. Hong Kong's financial reporting standards require related-party relationships, transactions and balances to be disclosed in the notes to the financial statements. Loans and other dealings in favour of directors have their own disclosure under the Companies Ordinance (section 383).
Confirmations. The auditor will usually ask each company to confirm its balance with the other, and the two must agree.
Recoverability. An amount due from a company that can't repay may need a provision, like any other doubtful debt (see bad debts).

Tax: terms should be arm's length

Hong Kong's transfer pricing rules (Part 8AA of the Inland Revenue Ordinance) start from the arm's length principle. Under section 50AAF, if a transaction between associated persons is made on terms that differ from what independent parties would have agreed, and that gives one of them a Hong Kong tax advantage, its income or loss is computed for tax as if arm's length terms had applied. The IRD can ask the company to prove that its figures are at arm's length, and estimate them if it can't.

In practice, for a small group: charge recharges on a reasonable, documented basis; think about whether an intercompany loan should carry interest; and keep the paperwork. Whether and how the rules apply to your arrangements is a question for your tax adviser.

Two companies with the same owner are also connected entities for profits tax, so only one of them can use the 8.25% two-tiered rate each year. Plan which one before the returns are filed (see profits tax rates).

How Certanta helps

Separate books for each company, with an account for each related company.
Both sides booked when money moves between companies we keep the books for, so the balances mirror each other.
Balances agreed every month, with differences raised as questions on your to-do list, not discovered at the audit.
The paper trail kept: invoices in the right company, recharge workings and loan documents filed with the entries.

Frequently asked questions

What is an intercompany balance?

The amount one company owes another company in the same group, or under the same ownership, for example after paying its bills, lending it money or recharging shared costs. It appears as an amount due from the other company in one set of books and an amount due to it in the other.

Why don't my intercompany balances agree?

Usually because a transaction was booked in one company and not the other, booked at a different amount, or booked in different currencies. Agreeing the balances every month finds these while they are easy to trace.

Do related-party transactions have to be disclosed?

Yes. Hong Kong's financial reporting standards require related-party relationships, transactions and balances to be disclosed in the notes to the financial statements, and the Companies Ordinance requires information about loans and other dealings in favour of directors (section 383).

Do intercompany transactions have to be at arm's length in Hong Kong?

The transfer pricing rules in Part 8AA of the Inland Revenue Ordinance start from the arm's length principle. Under section 50AAF, if a transaction between associated persons differs from arm's length terms and gives one of them a Hong Kong tax advantage, its income or loss is computed for tax as if arm's length terms had applied. Ask your tax adviser whether and how this applies to your arrangements.

Should an intercompany loan carry interest?

It depends on the facts and on the tax position of each company. Put the terms in writing either way, and ask your tax adviser whether interest should be charged.

Can two companies with the same owner both use the 8.25% profits tax rate?

No. Connected entities can nominate only one of them to use the two-tiered rates for a year of assessment; the others pay the standard rate.

Books for every company in the group, kept in step

Certanta keeps each company's books separately, books both sides of every transaction between them, and agrees the balances every month, so the year end doesn't start with a reconciliation.

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This article summarises the Inland Revenue Ordinance (Cap. 112) as published on e-Legislation on 29 October 2026. It is general information, not tax, legal or accounting advice. Whether the transfer pricing rules apply to a particular arrangement, and how intercompany balances should be settled, depend on the facts; ask your tax adviser.