How to Declare a Dormant Company in Hong Kong?

If you wish to temporarily suspend your business operations without deregistering your company in Hong Kong, you may want to consider applying for a dormant company status.

This guide will outline the advantages of utilizing a dormant company in Hong Kong, detail the application process, and specify the requirements you need to fulfill.

What is a Dormant company?

A dormant company is defined as a limited company that has not engaged in any accounting transactions over the course of a year. This status is legally recognized by both the law and the company members, allowing the business to temporarily suspend its activities while remaining registered. Although a dormant company ceases conducting business, it retains its legal standing and can be reactivated when the time is right. This arrangement offers an efficient way for businesses to pause operations without undergoing the complexity of deregistration.

Benefits of a dormant company in Hong Kong

There are several benefits to register a standard company as a dormant company: 

1. Cost Savings: Maintaining a dormant company typically incurs lower administrative and compliance costs compared to an active company.

2. Preservation of Company Name: Registering as a dormant company allows you to retain your business name for future use, preventing others from registering it.

3. Simplified Accounting: Dormant companies are exempt from the requirement to prepare detailed financial statements, simplifying accounting obligations.

4. Ease of Reactivation: When you're ready to resume business operations, reactivating a dormant company is generally straightforward and less complicated than starting a new entity.

5. Protection of Assets and Liabilities: Maintaining a dormant status helps shield the company's assets from any potential liabilities incurred while it is inactive.

6. Strategic Planning: A dormant company can serve as a strategic reserve, allowing business owners to plan for future opportunities without the pressures of active operations.

7. Tax Benefits: Depending on the jurisdiction, dormant companies may be subject to different tax obligations, potentially offering savings.

Process of Securing Dormant Company Status

The primary requirement for a company to be eligible for dormant company status is that it must not have conducted any relevant accounting transactions. Relevant accounting transactions include:

• Receipts and expenditures of funds by the company

• Sales and purchases of goods undertaken by the company

• Changes to the assets and liabilities of the company

To apply for dormant status, the company must pass a special resolution with the approval of at least 75% of the shareholders' votes. Once this resolution is passed, the directors are responsible for filing it with the Companies Registry within 15 days.

Who Cannot Apply for Dormant Company Status?

The following companies cannot apply for a dormant status in Hong Kong:

• A company that is not private

• A financial institution in accordance with the Banking Ordinance

• An insurer in accordance with the Insurance Companies Ordinance

• A corporation licensed under the Securities and Futures Ordinance (registered dealers, investment advisers)

• A Hong Kong company or a registered non-Hong Kong company which:

  • Is an intermediary (licensed corporation or licensed instruction)

  • Received 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 dealer registered under the Commodities Trading Ordinance

• A licensed leveraged foreign exchange trader as defined in the Levered Foreign Exchange Trade Ordinance

• A company subsidiary falling under any of the above categories during the preceding five years

Annual Compliance Obligations for Dormant Companies

Although a dormant company is exempt from maintaining certain accounting records, it still operates as a legal entity and must adhere to specific legal regulations.

A dormant company is required to:

• Maintain at least one director, one shareholder, a company secretary, and a registered office.

• Report any changes in directors or the registered address to the Companies Registry.

• Renew the Business Registration Certificate as needed.

• File a profits tax return, if issued by the Inland Revenue Department.

• Pay the annual business registration fee to the government.

By fulfilling these obligations, a dormant company can ensure compliance while benefiting from its dormant status.

Can a company cease to be dormant?

Yes, a company can cease its dormant status by reactivating it.

To do so, you must pass a special resolution with the approval of the majority of the shareholders. Additionally, you need to inform the Companies Registry about the cessation of the dormant status and declare the company's intention to engage in accounting transactions.

Once the company makes an accounting transaction, it will be considered no longer dormant, even if the Registrar has not been notified.

Conclusion

We recommend reaching out to Brasia for any further assistance you may need regarding your dormant company status.

We encourage you to provide a brief overview of your dormant company's operations and the challenges you are facing. Our consultants are ready to help you identify effective solutions to support your business.

For more information, please contact us at info@brasia.hk.