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.

What Are Dormant Companies?

A dormant company is a registered private entity that does not conduct business during a specific period. 

For instance, say ABC Holdings Pte. Ltd was registered as a consulting business in January 2024. Now let's imagine that his founder finds a job at a big company and intends to stop consulting for a while. Then, during that period, the founder may decide to declare that the company will go dormant.  

Benefits of a Hong Kong Dormant Company

The key advantages of declaring a company dormant include:

1. Reduced Costs and Formalities 

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. For example, a dormant company is not required to file an annual return (Form NAR1) with the Companies Registry. 

Also, because it does not have operations, a dormant company is not required to conduct a statutory audit of its accounts or file a profits tax return. Finally,  a dormant company is no longer required to hold an annual general meeting of its shareholders. 

Eventually, all this leads to reduced administrative and compliance costs over time.

However, it is important to remember that a dormant company is still required to renew its Business Registration every year (it is therefore not exempted from payment of the business registration fee).

2. Preservation of Legal Entity for Future Use 

A dormant company remains alive. It is simply inactive. It can be easily reactivated at any time through the passing of a special resolution.

This is just easier than closing your existing company and setting up a new one again later.

3. Better Assets Protection

Opting for a dormant status is a great way to protect its existing assets and intellectual property rights during the period when it is inactive.

4. Easier Than Deregistering Your Company

A professional life can be full of changes. You may sometimes start a business, put things on hold, and finally restart the same or another business later on.

Setting up a company is relatively easy. Closing it is more difficult and costly, especially if it has existing business and assets. 

If you stop your business, you should carefully consider if this is the end of your entrepreneurial journey or just a temporary one. If it is just temporary, then do not deregister your company: simply make it dormant. This way, you can easily reactivate it later on.

Reasons Not To Make Your Hong Kong Company Dormant

There are reasons for not making your company dormant:

• 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 fulfill obligations under Hong Kong law, such as appointing a company secretary and maintaining a registered office, all of which incur a cost
• As long as the company stays dormant, it must pay annual business registration fees to the Hong Kong government.
• The banks of your company are likely to close their accounts after a certain period of inactivity.

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 business and 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 normally ineligible for the dormant status.

Some people wrongly believe that the only fact not to conduct business is sufficient to make it dormant. This is a mistake. To officially qualify as “dormant,” a Hong Kong company needs to go through several steps:

1. Passing a Special Resolution 

The General Meeting of the shareholders must pass a special resolution (i.e., have at least 75% of the shareholders vote in favor 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. Filing the Resolution with the Hong Kong Companies Registry

The company directors must file the special resolution with the Companies Registry within 15 days of passing the special 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. Complying With the Ongoing 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 any changes to company structure/appointment of director or company secretary to the Companies Registry;
• Filing for renewal of the company's Business Registration Certificate (BRC); and
• Submitting any Profits Tax Return received by the Inland Revenue Department (if any — which shall normally not be the case)

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 resume business. The resolution should be submitted to the Companies 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. 

Overall, the process of reactivating a company is very similar to the one applicable to putting it 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 allow 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 they handle financial assets, they must remain active and engage in accounting transactions. These include:

1. Financial institution under the Banking Ordinance
2. Insurer under Insurance Companies Ordinance
3. A corporation licensed under the Securities and Futures Ordinance to carry on a business in any regulated activity defined in that Ordinance
4. An associated entity under the 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 paragraphs (a), (b), (c), (d) or (e)
7. A company that falls within  (a), (b), (c), (d), (e), or (f) at 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 easily. 

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 us today!