Hong Kong Dormant Company: What You Should Know

As a business owner, you may wish to keep your company on hold for a particular reason. For instance, you’re tired of cost pressure, you move abroad temporarily, or you simply want to take a break. You can choose to permanently close down your company.

Or, you can take time to collect your thoughts before restarting fresh with a dormant company. In this article, we seek to provide insight into what a Hong Kong company is, and how you can manage and apply for one.

What is a dormant company?

A dormant company is a Hong Kong limited company that has NO significant accounting transactions during a fiscal year. The word “Dormant” refers to inactive or inoperative. Even though the business is inactive, it remains a legal entity on the Companies Registry (CR).

You can establish a dormant company by passing a special resolution for registration with the CR. Or, you can register your standard company as a dormant company by applying for a “dormant status”. We’ll discuss this in more detail in the below section.

The pros and cons of a dormant company in Hong Kong

Benefits

There are several benefits to establishing a dormant company or registering a standard company as one. Let’s walk through some of them:

Relaunch business with ease

You might often think of closing your Hong Kong company, without being confident it’s the right thing to do.

If you close the company permanently, you cannot use it for future projects and must set up a new company. Moreover, company dissolution can be time-consuming and costly.

Applying for a dormant status allows you to restart easily when you want to, without further procedures or complications.

Hold assets and intellectual property

You can use a dormant company to hold assets or intellectual property. For instance, the dormant company can take responsibility for legal issues or staff management, without having significant accounting transactions.

In many cases, an investment holding company can also be set up as a dormant company to safeguard certain assets or intellectual property.

Minimum compliance

Your dormant company can be exempted from several legal requirements. For example, there is no need to prepare annual returns. However, the Business Registration Certificate must be renewed every year.

Safeguard company’s brand name

The longer your company exists, the greater your brand name is valued. If you close your company, the name will be available to the public, and you might lose it. With a dormant company, you won’t need to be active yet still stay legit in the eyes of the law and protect your company’s brand, name, and reputation.

Downsides

While being inactive in business transactions, a dormant company still being seen as a legal entity. Therefore, it still needs to fulfill the requirements and provisions of the Ordinance. Specifically such as:

• Have a minimum of individuals in the registered office or the process of the Companies Registry;
• Renew the registration if the business decides to be active again;
• Pay a yearly business registration fee to the Hong Kong government;
• File a tax return as requested by the Inland Revenue Department
• If an inactive business chooses to end its dormant status, it would still need to do management accounts, bookkeeping, and audits for the time it was dormant

Dormant company vs. Non-trading company

Dormant companies and non-trading companies seem to be similar, but there are key differences between them, which you might find useful to familiarize yourself with.

A non-trading company does not engage in business activities or carry out legal implications. Yet, it’s still required to record accounting transactions.

On the other hand, a genuine dormant company has officially registered for its “inactive” status. Thus, it shall not record any significant accounting transactions other than the mentioned ones allowed by the Ordinance.

Additionally, a dormant company in Hong Kong is exempt from certain liabilities, while a non-trading company is not.

How to become a dormant company in Hong Kong?

The main requirement to apply for a dormant company status is that your company has not made any significant accounting transactions.

As mentioned above, you can register a dormant company or apply for “dormant status”.

Register a dormant company

To register for dormancy, you must declare your intention with the Companies Registry (CR) by passing and delivering a special resolution.

Step 1: Pass a special resolution with at least 75% of the shareholders’ votes

Step 2: Once the resolution is passed, deliver it to the CR within 15 days.

Your dormant status will be applied from the date of delivery of the special resolution. If you wish to acquire dormant status on other days, you need to specify your intention.

Apply for dormant status

If you’re already running a company, and you want to make it dormant, you’ll need to:

(1) Pay any remaining bill (e.g., wages, dividends)

(2) Cancel contracts of the company (e.g., rent, insurance, utilities)

(3) Collect your receivable funds

(4) Pay your VAT (if applied) and cancel the VAT registration of your company

(5) Close down your business bank account (avoid getting interest payments)

After taking these measures, you shall inform the Company Registry of your intention to become dormant.

What are annual compliances for a Hong Kong dormant company?

Your dormant company is still a legal entity and thus is subject to certain annual compliance requirements in Hong Kong.

Specifically, your annual compliance requirements include:

• Having a registered office and at least 1 director, 1 shareholder, and a company secretary
• Reporting any changes in the company’s officers or registered office with the Companies Registry
• Renewing business registration certificate
• Pay the annual business registration fee to the Hong Kong government
• Filing Profit Tax Returns if required by the Inland Revenue Department

Can Hong Kong companies stop being dormant?

The answer is yes. If you no longer want the dormant status, you can reactivate business activities by following the same procedure you applied for.

This includes passing a special resolution and notifying the Companies Registry about your wish to cease dormant status.

In addition, you need to declare your intention to re-conduct significant accounting transactions, which should also be agreed upon by the majority of your company’s shareholders.

An easier way to cease your dormancy without notifying the CR is by making an accounting transaction.

However, you should consult your company members and shareholders. Additionally, it’s advisable to engage with a local professional on compliance before using this method to avoid causing internal conflict.

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Accounting obligations for a Hong Kong dormant company

While dormancy in Hong Kong exempts companies from preparing audited financial statements, it doesn’t eliminate all accounting and filing obligations. Maintaining dormant status requires adherence to mandatory compliance duties.

To qualify as dormant, a company must have zero accounting transactions during the financial year, with limited exceptions like statutory fees. After officially declaring dormancy via a special resolution filed with the Companies Registry, the requirement for audited accounts ceases. However, you must maintain proper accounting records, retain statutory documents, and fulfill necessary administrative tasks.

A critical ongoing requirement is the annual renewal of the Business Registration Certificate with the Inland Revenue Department. Furthermore, the IRD may still issue a Profits Tax Return. In this case, you must file a “NIL” return, accompanied by a written declaration confirming the company’s dormant status.

Conclusion

In conclusion, choosing dormant status for your Hong Kong company offers a strategic advantage: the ability to pause operations while significantly reducing costs and administrative burdens. This pathway provides flexibility, allowing you to preserve your company’s legal entity and seamlessly resume business activities whenever the time is right.

By opting for dormancy, you retain the option to reactivate without the complexities and expenses associated with dissolving and reincorporating. You might want to consider this practical solution for businesses in transition or those anticipating future endeavors.

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