Declaring a Dormant Company in Hong Kong
8 minute read
Do you want to save cost for your inactive company?
Well, under Section 5 of the Hong Kong Companies Ordinance, private companies can apply for dormant status to be exempted from complying with certain statutory requirements.
Often due to financial reasons, personal reasons or to protect the company name, companies would want to apply to be a dormant company. Most companies applying for a dormant status can save both time and money involved in filing an annual return every year, holding annual general meetings, appointing auditors and preparing audited financial statements. This article will tell you how your company can declare dormant.
A dormant company in Hong Kong that must not have any significant accounting records or any financial transactions in its accounting books during dormancy, excluding transactions arising from the payment of any fee that the company is required by an Ordinance to pay. A non-trading company does not equals to a dormant company.
The Companies Ordinance allows a company to become dormant and continue with the same status for a minimum maintenance cost as long as it does not have any accounting transaction.
- How to declare as a dormant company in Hong Kong
- The responsibilities and obligations of a dormant company
- Is it possible to cease of your dormant status?
- Companies not allowed to claim dormancy
How to declare as a dormant company in Hong Kong
An inactive company in Hong Kong which does not have any accounting transaction is required to officially declare itself as dormant as it will not be automatically considered dormant. Without the declaration and even if the company actually has no business activities or accounting transaction, it will continue to incur cost and needs to comply with all the statutory requirements laid down by the Companies Ordinance.
In order to declare dormant, the members of the company needs to pass a special resolution:
- Declaring that the company will become dormant from either:
- The date of delivery of the special resolution to the Registrar of Companies; OR
- Any later date that is specified in the special resolution; and
- Authorise the directors to file the special resolution to the Registrar of Companies
The directors should file the special resolution with the Companies Registry within 15 days after passing the resolution.
The responsibilities of the officers and obligation of a dormant company
Once your company has declared as a dormant company, it can remain in the inactive status at a minimum cost and exempt from:
- Filing annual returns;
- Holding annual general meetings;
- Appointing auditors; and
- Preparing audited financial statements.
However, the officers of the company still have the same responsibilities as a usual active company and need to observe their responsibilities and carry out their duties under the Companies Ordinance.
The dormant company has to:
- Have at least 1 individual director, 1 shareholder, a company secretary and a registered office;
- Report any change of company structure and the particulars of the officers to the Companies Registry;
- Renew Business Registration Certificate;
- File the Profits Tax Return (if any) issued by the Inland Revenue Department.
For more information and requirements of usual companies, check out our website or book an appointment with us for a chat.
Relevant accounting transactions
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, e.g. receipt and expenditure of money, assets and liabilities. If there is a transaction which arises from the payment of any fee which the company is required by any ordinances, it will be excluded, e.g. payment of business registration fee should not be regarded as an accounting transaction.
Take for example if the company has a bank account, any service fees charged by the bank or any interest credit to the account would be regarded as an accounting transaction. The company would not be eligible to apply for dormant status.
Is it possible to cease of your dormant status?
If you wish to resume your company’s business or there is an accounting transaction in relation to the company, the company should cease to be dormant. In this case, the company has to pass another special resolution declaring that the company intends to enter into an accounting transaction and the directors should deliver it to the Companies Registry for registration. An annual return still has to be submitted for the year in which it ceased to be dormant if the effective date on which it ceased to be dormant falls on or before the 42nd day after the anniversary of its date of incorporation.
Thereafter, the company may resume its active status and has to observe all its statutory requirements. The above-mentioned exemptions are no longer applicable.
Companies not allowed to claim dormant status
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 corporation licensed under the Securities and Futures Ordinance e.g. registered dealers, investment advisers etc.;
- A Hong Kong company or a registered non-Hong Kong company which (i) is in a controlling entity relationship with a company which is an intermediary (i.e. licensed corporation or registered instruction) or (ii) receives or holds in Hong Kong client assets of the intermediary as defined in the Securities and Futures Ordinance;
- A Mandatory Provident Fund Schemes Ordinance trustee;
- A company subsidiary falling under any of the aforementioned categories; and
- Companies which fall into any of the above during the preceding five years.