This guide will discuss the benefits of using a Hong Kong dormant company and the application procedure and requirements you must meet.
Instead of deregistering your business in Hong Kong, you might consider filing for a dormant company if you want to stop your commercial operations temporarily.
WHAT IS A DORMANT COMPANY
A limited company is referred to as being inactive if it has no accounting transactions over the course of a year and was given permission by the law and the company’s members to discontinue doing business operations temporarily.
BENEFITS OF HONG KONG DORMANT COMPANY
The creation of a dormant company or the designation of a regular firm as a dormant company has various advantages.
1. Restart the business
You could desire to stop doing business because of inescapable conditions. Applying for an inactive status that enables you to restart your firm is an alternative to dissolving the corporation. This will lessen the trouble of starting a new business.
2. Holding assets
You can keep assets or intellectual property in a dormant company. For instance, the inactive corporation may handle legal matters or personnel administration without engaging in substantial accounting activities.
3. Safeguarding the name of the company
Your company’s name, reputation, and brand can be safeguarded by a dormant entity. In contrast, if you deregister your business, the public will have access to the name, and other businesses may register it.
4. Reduced cost
The inactive business can minimize maintenance expenses and is exempt from adhering to the following regulatory requirements:
- Selection of auditors
- Submitting HK yearly returns
- AGMs being held annually
- The creation of certified financial statements
DOWNFALLS OF HONG KONG DORMANT COMPANY
A dormant corporation is nonetheless regarded as a legal entity even though it is not currently engaging in economic activity. As a result, it must still adhere to the rules and regulations of the ordinance. Namely:
- Maintaining the registered office address.
- Provide the Hong Kong government with an annual registration fee.
- Whenever the Inland Revenue Department requests it, file a tax return.
- An inactive firm would still have to complete management accounts, and bookkeeping for the period it was dormant.
DORMANT VS NON-TRADING COMPANY
A non-trading corporation doesn’t conduct any business operations or handle any legal matters. Yet, keeping track of accounting transactions is still necessary.
A real dormant company, on the other hand, has formally declared itself to be “inactive.” Hence, it is prohibited from recording any substantial accounting transactions other than those listed above that are permitted by Ordinance.
A non-trading corporation in Hong Kong is not free from certain liabilities, although a dormant company is.
HOW TO APPLY FOR A HONG KONG DORMANT COMPANY?
Your firm must not have conducted any substantial accounting transactions in order to seek a dormant company status.
Accounting transactions that are pertinent include:
- The sum of money the business has received and increased
- Company sales and acquisitions of items
- Company’s assets and liabilities
You must pass and present a specific resolution to the Registrar of Companies (RoC) in order to register for dormancy.
Step 1: A special resolution must be approved by at least 75% of the shareholders.
Step 2: Provide the resolution to the RoC within 15 days of it being approved.
REGULATIONS AND REQUIREMENTS OF HONG KONG DORMANT COMPANY
Responsibilities of officers
The business operates at its lowest cost once it has entered dormancy. It is excluded from having to file yearly returns, have annual meetings, choose auditors, and provide audited financial statements.
The executives of the inactive company in Hong Kong still have particular obligations, and they must uphold their commitments and perform their tasks in accordance with the Companies’ Law even though the business is on pause. The same responsibilities as those of a typical firm are theirs.
Audit and reporting exemptions
Hong Kong limited firms are required to perform their accounting and have their books audited annually by a licensed CPA. As long as it has no accounting activities, a business may declare itself inactive and maintain that status under the Companies Ordinance for a minimal maintenance fee.
Under some circumstances, such as if the accounts have been inactive since the firm’s establishment or the end of the fiscal year, the corporation is exempted from the audit.
Relevant accounting transactions
Many types of transactions take place in a firm based on the exchange of money. No Relevant Accounting Transaction is the philosophy used by the defunct firm in Hong Kong. Nonetheless, certain transactions are required to be completed by company executives.
Laws provide that any transaction that the corporation is required to pay for by the Ordinance is exempt. For instance, it is not appropriate to consider paying the business registration fee as an accounting activity.
Accounting transactions would include any bank service charges or interest credits to the company’s account. Because of this, the corporation would not be qualified to request inactive status.
Businesses are not permitted to claim dormancy
In Hong Kong, the following businesses are not eligible to request an inactive status:
- A public firm
- An institution of finance operating in compliance with the Banking Ordinance
- A provider of insurance under the Insurance Companies Ordinance
- a company with a Securities and Futures Ordinance license (registered dealers, investment advisers)
- A registered non-Hong Kong corporation or a Hong Kong company that:
- Is an intermediary (certified business or certified training)
- As defined by the Securities and Futures Law, receives or retains client assets of the intermediary in Hong Kong
- A trustee in compliance with the Required Provident Fund Schemes Ordinance
- A trader who is authorised under the Commodities Trading Ordinance
- As per the Leveraged Foreign Exchange Trading Law, a registered leveraged foreign exchange trader
- Any firm subsidiary that, over the previous five years, fit one of the aforementioned criteria
Cessation of dormant status
You can reactivate the firm if you no longer desire the dormancy status.
For doing so, you must approve a special resolution with a majority of the votes cast by the shareholders, inform the Companies Registry that the company’s inactive status has ended, and state your intention to engage in an accounting transaction.
By entering into an accounting transaction, the business will be considered to have ceased to be inactive, even if the Registrar is not informed.
Annual compliance requirements
Even if a dormant corporation is free from keeping some accounting records, it is still considered a legal entity and must abide by some legal requirements.
A dormant company must:
- Have at least one shareholder, one director, one company secretary, and an office where they are registered
- Inform the Companies Register of any changes to the officers or registered address
- Renew the Certificate of Business Registration
- Submit the Inland Revenue Department’s earnings tax return (if any)
- Pay the government the yearly registration charge for your firm
REQUIRE PROFESSIONAL HELP? CONTACT RELIN CONSULTANTS
Relin Consultants will offer you the appropriate advice in this situation.
Both HK business registration and de-registration in Hong Kong are fully handled by our experts. At each stage of creating a dormant business in Hong Kong, we will provide you with information and guidance for better understanding.
Does a dormant business have to pay a registration fee and submit a profit tax report every year?
Yes. Every year, an inactive business must renew its business registration license and submit a profit tax return whenever the Inland Revenue Agency does so. An inactive corporation must continue to have one shareholder, one director, one company secretary, and a registered office with a working address.
Is Form NAR1 (Annual Return) necessary for a dormant company?
An inactive firm is exempt from having to submit Form NAR1 (Annual Return) for registration. The Form NAR1 must be delivered to Company Registry for registration if a dormant company proclaims itself to be so after the 42nd day following the anniversary date of formation.
What should I do if I no longer need my dormant company?
In the event that you decide you no longer desire your dormant company, it is crucial to arrange the legal deregistration. Please refer to the deregistration service in Hong Kong.
What is the process for reactivating a dormant business?
If the firm wants to end its inactive status at some point, it must adopt a special resolution declaring its desire to engage in accounting transactions and send the resolution for registration in a timely manner. You might wonder what an accounting transaction is.
According to Section 2 of the Companies Ordinance, a transaction that must be recorded in accordance with Section 373 is one that does not result from the payment of any fees that the company is mandated by an Ordinance to pay, such as the business registration fee.