Contents
- Key Takeaways
- Dormant Status Explained
- Why declare a dormant company in Hong Kong?
- Dormant company IRD obligations
- Dormant company audit exemption Hong Kong
- How to apply for dormant company in Hong Kong
- How may a dormant company be reactivated?
- Frequently Asked Questions about collection of personal data
Key Takeaways
- Applying for dormant status enables companies without business activities to cut down on maintenance costs
- A dormant company in Hong Kong is not required to submit audited financial statements and annual returns
- Dormant company IRD obligations involve renewing the business registration certificate each year
- Dormant company audit exemption automatically ends when the company enters into an accounting transaction
There are many reasons a business owner may choose to file for dormancy. Perhaps another venture is taking up all of your time, or perhaps you’d simply like to take a break from work. The business can still be highly profitable, and though you don’t want to let it go, the timing doesn’t seem to be quite right. In this case, dormancy might be the most cost effective solution.
Dormant Status Explained
A private limited company in Hong Kong is considered as a dormant company when it has no significant accounting transactions.
Dormancy will end automatically, and compliance obligations resume fully, the moment the company enters into the following accounting transactions:
- Making business payments
- Receiving income
- Earning bank interest
- Fund Transfers
- Issuing invoices
Why declare a dormant company in Hong Kong?
1. Reduced Costs and administrative tasks
The following are some of the annual obligations that active HK companies are subject to:
- Holding annual general meetings
- Submitting profits tax returns
- Preparing audited financial statements
- Filing annual returns (Form NAR1)
Once a company declares itself dormant, it is exempt from all of the obligations listed above, making dormancy an effective way to lower yearly administrative costs.
However, note that a dormant company is still required to maintain 1 shareholder, 1 director, 1 company secretary and a valid registered office address.
2. Preserving existing assets and IP rights
If you’ve accumulated assets and intellectual property rights under your company, then deregistering your company would involve relinquishing both. Declaring dormancy enables you to keep your brand and your property, so that you do not have to start from zero once you’re ready to resume business operations again.
3. Less costly than deregistration
Deregistering a company often takes at least 8-12 months, and the time costs involved would also be reflected in the fees of your service provider. Later, if you decide to incorporate an entity again, this will involve another set of fees.
If you’re certain that your company’s inactivity will only be temporary, then dormancy is the more affordable choice.
Dormant company IRD obligations
Though a dormant company is exempt from certain reporting requirements imposed by the Companies Registry and the Inland Revenue Department (IRD), it is still required to renew its business registration certificate every year. However, this only involves a small government fee of HK$2,200.
Dormant company audit exemption Hong Kong
As we can see here, a dormant company still has to pay certain government fees, even though it must have no significant accounting transactions in order to maintain dormant status.
This raises the question: what counts as a “significant accounting transaction”?
Significant transactions are those that have a direct impact on a company’s financial status (the same ones that will bring a company out of dormancy). Generally speaking, non-financial activities, such as paying government fees to keep the company in good standing, will not be considered as a “significant” accounting transaction that needs to be entered in the company’s accounting records.
Other permissible transactions for dormant companies include fees to
- Maintain a registered office
- Complete government filings and updating the Companies Registry
- Allot shares
How to apply for dormant company in Hong Kong
Step 1: Passing a Special Resolution for dormancy
According to section 5 of the Companies Ordinance, the company that intends to declare dormancy must first pass a special resolution. This is a resolution that is approved by at least 75% of the total voting rights of shareholders voting on the resolution.
Step 2: Filing the Resolution
No later than 15 days of the passing of the resolution, the company must then file the special resolution at the Companies Registry. As we can see, filing the resolution is all it takes for the company to formally declare dormancy.
The company becomes dormant either on the day the special resolution is delivered to the Registrar of Companies, or on a date specified in the special resolution.
How may a dormant company be reactivated?
As mentioned before, a dormancy is completely reversible. To reactivate a dormant company, the company may either
- pass and file a special resolution declaring its intention to resume business
- Enter into an accounting transaction
Once reactivated, your company will be subject to all compliance requirements applicable to active HK companies. If you’re not quite sure on whether dormancy is the best choice for your business, feel free to reach out to Get Started HK, and let our advisors help!
Frequently Asked Questions about collection of personal data
1. Does a Hong Kong dormant company need to renew business registration?
Yes, a dormant company still needs to renew its business registration certificate each year, just like active Hong Kong companies. Other requirements that apply to active HK companies, such as having a registered address in Hong Kong, maintaining at least 1 director, shareholder, and company secretary, also apply to dormant companies. At the time of writing, the government fee to renew the business registration certificate is HK$2,200.
2. What happens if a company is dormant?
Once a company applies for dormant status, it is no longer required to submit audited financial statements and form NAR1, along with the associated government fees to the Companies Registry. In this way, applying for dormant status enables companies to save on costs involved in appointing an auditor and paying government fees.
3. Does a dormant company need to file an annual return?
No, a dormant company need not file annual returns, nor pay the government fee that should be submitted along with the form. However, a dormant company will still receive a BR demand note each year, which notifies the recipient of payment of the business registration certificate renewal fee. Failure to pay the fee will result in government penalties.
4. What are the benefits of a dormant company?
The main benefits of declaring dormancy is a reduction in government renewal fees and administrative tasks like filing annual returns and holding an AGM each year. If your company has a significant number of assets and IP rights, then filing for dormancy would also enable your company to preserve both. Deregistration, on the other hand, would dissolve the entity completely, along with its rights over IP and existing assets.
