Dormant Company in Hong Kong

Most companies apply for inactive status or a dormant status so that they can save both time and money involved in filing annual returns.

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Do you want to keep your company on hold for a particular reason without actually closing it? Or do you want to take some time getting things settled before drumming up your new business with the minimal cost possible? Then all you should know about is a Dormant Company in Hong Kong.

If you regulate one or multiple companies, you may wish to put the business on hold for some reason, or you might even want for some rest after some hectic trading. Either way, having a dormant company may allow you to do that. This article will help you get to the heart of what the dormant company in Hong Kong is all about.

What is a Dormant Company?

A company is considered as a Dormant company when there are no accounting transactions during a year, which is legally approved to cease doing its business activity for a temporary period but the company remains registered.

Most companies apply for inactive status or a dormant status so that they can save both time and money involved in filing annual returns, holding annual general meetings, appointing auditors and preparing audited financial statements.

To grasp the concept of a dormant company under Hong Kong jurisdiction, the person needs to fully understand what “no accounting transactions” means. Basically, an accounting transaction is recorded in the accounting record of the business. The Companies Ordinance allows a company to declare itself as dormant and continue with the same status for a minimum maintenance cost as long as it does not have any accounting transactions.

The amount the company paid for shares when it was first incorporated is excluded as significant accounting transactions. On the other hand, a genuine dormant company in Hong Kong has officially registered its “inactive” status. It therefore would not enter into any accounting transactions other than the ones that are allowed by the Ordinance. By the same token, a dormant company in Hong Kong is exempt from certain liabilities and can enjoy certain benefits to boot.

Benefits of a Dormant Company in Hong Kong

The major benefit of dormant status is that it helps your inactive company to hold at a minimum maintenance cost. Once the company becomes a dormant company in Hong Kong, it won’t require to comply with some annual obligations. However, in the year in which the company declares itself dormant, the company still has to submit a basic renewal of that year.

Some of the benefits of having a dormant company in Hong Kong are as follows:

To protect the company’s reputation

There are many compelling reasons to establish a dormant company or register a standard company as one. After a company registers to be a dormant company in Hong Kong, it’s inactive status helps signify your brand and safeguard your company’s name.

To hold certain assets

Most investors will save a portion of assets as a part of a balanced portfolio, and many conservative investors may hold the majority of these assets in their collection to ensure capital preservation. Declaring oneself a dormant company in Hong Kong allows a company to have a way of preserving its certain assets or intellectual properties.

To deliberately suspend the operations of the company

If you have no projects to start shortly, then dormancy can help you save on various activities of the company. It would be of great use when you have no legal formalities to complete.

To preserve the company as a legal entity

Maintaining a company at a minimum maintenance cost can be hard. But dormancy helps you do that easily. By becoming dormant, your company is exempt from complying with several legal requirements. Below are a few of them as laid down by the Ordinance:

  1. Filing an annual return
  2. Holding annual general meetings
  3. Preparing audited financial statements and appointment or resignation or removal of auditors

To satisfy any other essential needs

Under certain circumstances, you may want to halt the business. But, formally declaring your company as dormant allows you to re-launch your business later at your convenience and without having to dissolve it. It saves you from the hassle of starting a new company all over again.

How does a company apply for dormancy in Hong Kong?

Due to the pro-business climate and the low taxation regime, entrepreneurs are willing to open a business in Hong Kong. Though, in some cases, businesses need to stop for a specific reason. That is where the company needs to apply for the dormancy.

A company needs to pass a special resolution authorizing its Director(s) to make and deliver to the Registrar of Companies. It is a statutory declaration to the effect that the company will become dormant. The directors should file the special resolution with the Companies Registry within 15 days after passing the resolution.

The sole eligibility criteria to become a dormant company in Hong Kong is the “no relevant accounting transaction” since the date of its incorporation or any date that is specified.

A relevant accounting transaction is defined to include:

  • All sums of money received and expanded by the company and the matters in respect of which the receipt and expenditure take place.
  • All sales and purchases of goods by the company.
  • The assets and liabilities of the company.

Dormant companies cannot enter into any sale or purchase of goods or transactions of money. The company can only pay money under a mandatory regime. The company’s managers will continue to engage in their specific work and ensure that the company complies with the requirements that are required to be fulfilled during the dormant period.

Not every company in Hong Kong can become a dormant company. There are certain kinds of companies that are not allowed to claim dormancy. The Ordinance does not apply to a company that is not a private company. Below are certain kinds of companies that are not allowed to declare dormancy:

  • An authorized institution as defined in the Banking Ordinance
  • A dealer registered under the Commodities Trading Ordinance
  • A company having a subsidiary that falls with any of the above eight categories

There are many other kinds of companies that are not allowed for dormancy. You will read more about this below in the upcoming sections.

Regulations and Requirements for Dormant Companies

For any kind of work, regulations are required to ensure the safety and dignity of the workplace. There are specific requirements for the Dormant companies as well which embarks upon the duties of the officer of a dormant company, audit and report exemptions, accounting transactions and the annual compliance requirement for a dormant company.

#1 Responsibilities of Officers of a Dormant Company

After the company has become a dormant company, it runs at a minimum cost status. It is exempted from filing annual returns, holding annual general meetings, Appointing auditors, and preparing audited financial statements.

Even though the company is on hold, the officers of the dormant company in Hong Kong still have specific responsibilities, they need to observe their obligations and carry out their duties under the Companies’ Ordinance. They have similar duties as those of a regular company.

The directors and secretary will manage the company on behalf of the shareholders or members. They hold meetings and ensure the submission of necessary returns and other documents to the Companies Registry.

Given below are the basic requirements of a dormant company. The laws mandate that a dormant company must:

  • Have at least one individual director, one shareholder, a company secretary, and a registered address;
  • Report any change of company structure and the particulars of the officers to the Companies Registry;
  • Renew Business Registration Certificate (BRC); and
  • File the Profits Tax Return (if any) issued by the Inland Revenue Department.

#2 Audit Exemption and Reporting Exemption

A dormant company in Hong Kong must not have any accounting or financial transactions during dormancy, excluding transactions from the payment of fees that the company is required by the Companies Ordinance.

Every year, HK limited companies have to do their accounting and get their books audited by a practicing CPA. The Companies Ordinance allows a company to declare itself as dormant and continue with the same status for a minimum maintenance cost as long as it does not have any accounting transactions.

Basically, the audit exemption for a company allows it to be exempt from the requirements to have the financial statements and audit prepared. The company is exempted from audit under certain conditions, such as if the accounts have been dormant since formation or the end of the financial year. Once the company is dormant, it grants financial reporting exemptions and various public accountability designations.

#3 Relevant accounting transactions

Based on the exchange of cash, various kinds of transactions occur in a company. The dormant company in Hong Kong follows the concept of no relevant accounting transaction. But there are certain mandatory transactions which are to be made by company officers.

Section 2 of the Companies Ordinance states that an accounting transaction means a transaction that is required by section 373 to be entered by the company’s accounting records. For example, receipt and expenditure of money, assets, and liabilities. According to laws, any transaction that the Ordinance requires the company to pay is excluded. For example, payment of the business registration fee should not be regarded as an accounting transaction.

Any service fees charged by a bank or any interest credit to the account of the company would be regarded as accounting transactions. Due to which the company would not be eligible to apply for dormant status.

#4 Companies not allowed to claim dormant status

Not every company is allowed to be a dormant company in Hong Kong. A company that is not private or fall within any of the following categories cannot claim a dormant status in Hong Kong:

  • A financial institution as per the Banking Ordinance;
  • An insurer as per the Insurance Companies Ordinance;
  • A Mandatory Provident Fund Schemes Ordinance trustee.
  • A corporation licensed under the Securities and Futures Ordinance
  • A dealer registered under the Commodities Trading Ordinance
  • A Hong Kong company or a registered non-Hong Kong company which
    • is in a controlling entity relationship with a company which is an intermediary (i.e. licensed corporation or registered instruction) or
    • receives or holds in Hong Kong client assets of the intermediary as defined in the Securities and Futures Ordinance
  • A licensed leveraged foreign exchange trader as defined in the
  • Leveraged Foreign Exchange Trading Ordinance
  • A company subsidiary falling under any of the above categories at any time during the preceding five years.

#5 Cessation of Dormant Status

If you no longer require a dormant company, it is essential to re-active it formally. The company should cease to be inactive if you wish to re-commence your company’s business, or there is an accounting transaction occurring in the company.

After ceasing to be dormant, it will run like a normal company. You could renounce the dormant status and re-activate the business activities by going through pretty much the same procedure as when you applied for it.

If a dormant company enters into an accounting transaction, the company ceases to be a dormant company. The exemption from delivery of annual returns cease to have an effect on and after the date of the accounting transaction.

All the company needs to cease the dormant status is to pass another special resolution declaring that the company intends to enter into an accounting transaction, and that the directors should deliver the special resolution to the Companies’ Registry for registration. After this, the company will resume its active status.

Investors who ultimately decide that the company is not to continue can choose to de-register it. This means that the legal entity will be closed permanently and removed from the register, which can be done via a voluntary procedure (de-registration) when the company has no debts or using voluntary liquidation.

#6 The annual compliance requirement for a dormant company in Hong Kong

Above all, obtaining a dormant status does not suggest that you are qualified for a complete exemption on every responsibility.

With a dormant company in Hong Kong, you are allowed to lighten the burden of maintaining every little detail in accounting records. All you are able to do is maintain your business at low maintenance costs.

As your company remains a legal entity, there is a routine to follow and some requirements to fulfill, some of which are:

  • There must be a registered office and at least one director, one shareholder, and a qualified company secretary (i.e. TCSP Licensee).
  • The Registrar must be advised of any changes in the company’s officers or registered office.
  • The business registration certificate shall be renewed by paying the required fee to the government.
  • The Profits Tax Return shall be filed in case the Inland Revenue Department issues one.

Need any professional help? Contact Startupr!

Now that you have gathered almost all the information and have a better understanding of the importance of a Dormant company in Hong Kong, you will need a helping hand to go through the actual process of becoming a dormant company. In that case, Startupr will assist you with proper guidance.

Startupr puts you first. This is why our primary focus is on Start-ups with global ambitions. Our team provides complete services for company formation in Hong Kong; however, we can also provide the needed assistance for company liquidation as well as de-registration. We will be giving you the details and advice for a better knowledge at each step in making a dormant company in Hong Kong.

As part of our brilliant service, Investors who need more information on how to apply for a dormant status, as well as those who are considering closing their business operations, can contact us for more details.