Declaring Dormant Company Status in Hong Kong

Declaring Dormant Company Status in Hong Kong

Are you looking to reduce costs for your inactive company?

In this regard, a private company can seek to be classified as dormant company in accordance to Section 5 of the Hong Kong Companies Ordinance, so as to be relieved from complying with certain statutory obligations.

Mostly driven by financial considerations, personal considerations or to preserve the company name, companies would want to apply to be a dormant company. By obtaining a dormant status, most companies can avoid spending time and money on filing an annual return every year, holding annual general meetings, appointing auditors and preparing audited financial statements. This post will inform you of how your company could be declared dormant.

A dormant company in Hong Kong should not have any accounting records or financial transactions in its books of account during the period of dormancy except transactions that are as a result of the payment of any fee that the company is required to pay by an Ordinance. A non-trading company is not the same as a dormant company.

A company is allowed to become dormant and preserve its status under the Companies Ordinance by making just a minimum maintenance cost so long as it does not have any accounting transaction.

How to declare your company’s status as dormant company in Hong Kong

A dormant company in Hong Kong which does not have any accounting transaction is supposed to declare itself dormant officially because it will not be considered as such automatically. Irrespective of the declaration and whether the company has or has no business activities or accounting transaction, it will continue to incur cost and needs to adhere to all the statutory requirements set forth in 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 lodgment of the special resolution with the Registrar of Companies; OR
  • Any other date that is mentioned in the special resolution; and
  • Delegate the directors to submit the special resolution to the Registrar of Companies.

The directors should register the special resolution with the Companies Registry within 15 days from the date of passing the resolution.

Responsibilities and obligations of officers in a dormant company

Once your company has been declared as dormant, it can maintain its inactive status at minimal cost and is exempt from:

  • Filing annual returns;
  • Holding annual general meetings;
  • Appointing auditors; and
  • Preparing audited financial statements.

Nonetheless, the officers of the company still carry the same obligations as a typical active company and should comply with their duties and perform their roles under the Companies Ordinance.

The dormant company has to:

  • Must have at least one individual director, one shareholder, a company secretary, and a registered office. 
  • Report any changes in the company’s structure or particulars of its officers to the Companies Registry. 
  • Renew your Business Registration Certificate, and 
  • File the Profits Tax Return if issued by the Inland Revenue Department.

Accounting transactions pertinent to dormant companies

Section 2 of the Companies Ordinance says that an accounting transaction is a transaction that is required by section 373 to be entered in the company’s accounting records, for instance, 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. For example, payment of business registration fee should not be treated as an accounting transaction.

Worried about how to register a business in Hong Kong? If yes, do read our guide on that!

For instance, if the company has a bank account, any service fees charged by the bank or any interest credit to the account would be considered as an accounting transaction. Dormant status application would not be applicable for the company.

Can dormant status be revoked?

Where you want to continue doing business of the company or there is an accounting transaction relating to the company, the company should cease to be dormant. In this situation, the firm needs to adopt another special resolution stating that the company desires to enter into an accounting transaction and the directors must deposit it with the Companies Registry for registration. 

If the effective date, on which a dormant company ceased to be dormant, is on or before the 42nd day after the anniversary of its date of incorporation, an annual return should still be filed for the year in which it ceased to be dormant.

After that, the company may become active and should comply with all the statutory requirements. Exemptions for dormant company are now null and void.

Restricted companies unable to claim dormant status

A company that is not private or falls within any of the following categories cannot claim dormant status in Hong Kong:

  • A financial institution under the Banking Ordinance.
  • An insurer under the Insurance Companies Ordinance.
  • A corporation licensed under the Securities and Futures Ordinance (e.g. registered dealers, investment advisers).
  • A Hong Kong company or registered non-Hong Kong company that (i) has a controlling entity relationship with an intermediary company (i.e. a licensed corporation or registered instruction) or (ii) receives or holds client assets in Hong Kong 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.
  • Companies that fall into any of the above categories during the preceding five years.

How FastLane Group Can Help?

The Companies Ordinance stipulates the processes to be followed in order to put your company in the dormant status. This will exempt you from some statutory obligations. FastLane Group, a group offering company secretary, accounting, tax, and audit services, can guide you through this process and helps you to be compliant with all regulations while you can save the related costs for your inactive company. Contact us now.

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