A Complete Guide to Declaring a Dormant Company in Hong Kong

Imagine if you could hit the pause button on your business operations and wait for a better time to restart? Dormant companies in Hong Kong offer precisely that opportunity. 

Often, businesses become dormant due to inactivity, but not everyone understands the responsibilities involved. This article explains what a dormant company is and guides you on how to become one.

Key Takeaways

• A dormant company doesn’t carry out accounting transactions 

• There are several benefits but not without obligations.

• Passing and filing a special resolution is key for dormancy/cessation

What Are Dormant Companies?

A dormant company is a registered private entity that doesn’t actively carry out any accounting transactions during a specified period. Under the Hong Kong Companies Ordinance, an accounting transaction is one that’s recorded in the company’s financial records. A non-trading company is not the same as a dormant company.

For instance, say ABC Holdings Pte. Ltd was registered as a real estate investment company in December 2019. Due to pandemic, the company was unable to purchase/sell any properties or conduct any financial transactions for the past few years. Although ABC Holdings Ltd. is a legal entity, it is dormant as it doesn’t carry out any transactions.  

Benefits of a Hong Kong Dormant Company

The key advantages of operating as a dormant company include:

1 – Better protection of assets

Opting for a dormant status is a great way to protect your assets and intellectual property  when you don’t want to carry out any business.

For example, you can retain the trademarks filed for your business to preserve the brand integrity. 

2 –  Reduced burden of compliance increases cost efficiency 

Compared to an active company registered in Hong Kong, a dormant company has a reduced burden of compliance since it is exempted from several annual/quarterly filings. 

Over time, this leads to reduced administrative and compliance costs.

3 –  Preservation of legal entity for future use 

Going through the process of setting up a new company can take weeks. Since you can revive the dormant status of a company, it is a great vehicle for future use. 

When you already have a company in existence, you can restart your activities whenever you are ready. 

For instance, a business awaiting further permits and licences from authority can continue to remain a dormant company to protect its  corporate status. 

Why You Should Not Make Your Hong Kong Company Dormant

From a commercial and logistics standpoint, opting to become a dormant company may not always be a beneficial move:

• If a company remains dormant for several years, it may be financially more efficient to wind up the operations permanently. A dormant company needs to fulfil obligations under the Hong Kong law such as appointing a company secretary and maintaining a registered office, all of which incurs a cost.
• As long as the company stays dormant, it must pay annual registration fees to the Hong Kong government and file tax returns with the Inland Revenue Department.
• Even if you eventually decide to close the company, you need to report changes to your company structure to the Companies Registry during dormancy. 

As a business owner, you still remain responsible to discharge your obligations under the Hong Kong Companies Ordinance.

How to Apply for a Dormant Company Status?

The only requirement for a company to qualify as dormant in Hong Kong is the absence of any relevant accounting transactions. 

This means:

• Except for mandatory payments, the company cannot engage in financial transactions or buy/sell any goods/services. 

Any payments due under any law are permitted. But if any interest is credited to the company’s bank account, it qualifies as an accounting transaction, making the company ineligible to apply for dormant status.

• Even though the company officials are exempted from responsibilities of running an active company, they still need to comply with the relevant requirements during the dormant period.

That said, what qualifies as an accounting transaction should be examined on a case-to-case basis by an independent professional. 

Becoming a dormant company is not a decision you can make in isolation. Here’s what you need to do to become one:

1 – Pass a special resolution 

Pass a special resolution (i.e., have at least 75% of the shareholders vote in favour of) declaring that the company wants to become dormant. 

This serves as a statutory declaration of the intention of business owners to enter dormancy. 

2 – File the resolution with the Registrar of Companies 

The company directors must file the special resolution with the Companies Registry within 15 days of passing the resolution.

The company becomes a dormant company on: 

• the day the special resolution to the Registrar of Companies is delivered; or
• any other date specified in the special resolution.

3 – Comply with obligations of a dormant company

Officers of a dormant company do not have the same obligations as officers of an active company which includes filing annual returns, holding annual general meetings, and preparing financial statements.

However, they need to comply with other obligations such as:

• Having a registered office address, at least one shareholder, an individual director, and a company secretary
• Reporting changes to company structure/appointment of director or company secretary to the Companies Registry;
• Filing for renewal of Business Registration Certificate (BRC); and
• Filing Profits Tax Return issued by the Inland Revenue Department, if any

Documents Required in Cessation of a Dormant Status

Here’s what you’ll require if you plan to revive a dormant company in Hong Kong:

• A special resolution stating that the company intends to make an accounting transaction. The resolution should be submitted to the Company Registry.
• If the company ceases to be dormant on or before the 42nd day after its incorporation anniversary, it needs to submit an annual return for that year.

As soon as the company conducts an accounting transaction, it ceases to be dormant. 

What Companies Are Not Allowed to Claim Dormant Status?

Not all registered businesses in Hong Kong can become a dormant company.

Only private companies are allowed to be dormant. If you are not a private company, the relevant provisions of the Hong Kong Companies Ordinance that allows an entity to become dormant do not apply.

Certain companies, as specified in Section 5, Sub-section 7 of the Hong Kong Companies Ordinance, are ineligible for dormant status. As  hey handle financial assets, they must remain active and engage in accounting transactions.These include:

1. financial institution under Banking Ordinance;
2. Insurer under Insurance Companies Ordinance;
3. a corporation licensed under Securities and Futures Ordinance to carry on a business in any regulated activity defined in that Ordinance
4. an associated entity under Securities and Futures Ordinance, of a corporation in paragraph (c);
5. an approved trustee of the Mandatory Provident Fund Schemes Ordinance ;
6. a subsidiary of a company that falls within paragraph (a), (b), (c), (d) or (e); or
7. a company that falls within  (a), (b), (c), (d), (e) or (f) any time during the 5 years immediately before the special resolution for claiming dormant status is passed.

The financial secretary of Hong Kong is at liberty to amend the list above and add more companies that cannot claim dormant status.

Bottom Line

Dormant companies in Hong Kong are an excellent option for business owners who want to temporarily halt their operations but want to preserve their corporate status. This flexibility allows them to restart their business in a favourable environment. 

If you are planning to become a dormant company, you need an expert who can guide you. As a seasoned service provider, Air Corporate can help you navigate the process of registering your company in Hong Kong and also apply for dormant status, if needed.  

To make an informed decision about applying for dormant status, reach out to Air Corporate today to learn more about how you can apply for a dormant company status.

FAQ

1. What is a dormant company?

 A registered private company that exists on paper but does not carry out any accounting or business transactions is known as a dormant company. 

2. Can a company cease to be dormant?

If a company starts re-engaging in business transactions, it can cease to be a dormant    company. A dormant company can also pass and submit a special resolution to the Registrar of Companies to show that it intends to enter into a commercial transaction.

3. Are there compliance requirements while a company remains dormant?

Yes, a dormant company continues to be a legal entity with obligations under Hong Kong law.  These include:

• Renewing business registration certificate 
• Filing profit tax return with the Inland Revenue Department
• Maintaining a registered office with at least one shareholder, director, and a company secretary 
• Informing the Registrar of Companies about any changes in the company’s officers or registered office

4. How can a dormant company be reactivated?

To reactivate a dormant company, a special resolution should be passed and delivered to the Registrar of Companies. The resolution must declare that the company wants to carry out accounting transactions once again.