According to the latest guidelines from the Inland Revenue Department, starting from April 1, 2023, Hong Kong companies other than dormant companies are required to submit audited financial statements even if they make "NIL return”. Dormant companies are considered by entrepreneurs a cost-saving option when their business performance was poor or affected by personal factors or new business directions. It allowed them to retain the company while minimizing time and money spent. Under the latest guidelines, dormant companies seem to be the only choice for minimizing maintenance costs. This article will explain the principles, benefits, conditions, and application process to help entrepreneurs adapt more flexibly on their entrepreneurial journey.
What is a Dormant Company?
A "dormant company" refers to a limited company that, through a special resolution, will not engage in any "accounting transactions." Becoming a dormant company can exempt you from complying with certain statutory requirements, significantly reducing costs:
- Submission of annual returns
- Holding annual general meetings
- Appointment of auditors
- Preparation of financial statements
Apart from the above, the company still needs to fulfill other statutory requirements:
- Appoint at least one individual director, one shareholder, one company secretary, and have a registered business address.
- No need to submit annual returns, but if there are any changes in company information, such as directors, company secretary, and shareholders, you still need to submit the relevant forms to the Companies Registry.
- Renew business registration certificate (BR) on time.
- Submit profit tax returns issued by the Inland Revenue Department on time (if applicable).
What are Accounting Transactions?
According to the Companies Ordinance, "accounting transactions" refer to all matters recorded in the company's accounting records, including income, expenses, assets, and liabilities, except statutory expense (e.g. BR fee). Even services fees and interest paid in the name of the company, such as salary disbursements or investments, are defined as accounting transactions. Therefore, besides not having any transactions throughout the financial year, a dormant company also does not have a bank account, ensuring its true "dormant" status.
How to Become a Dormant Company?
To become a dormant company, you need to proactively apply to the Companies Registry. Simply not having any accounting transactions does not automatically make your company dormant. Furthermore, before applying, make sure to determine your business nature. Non-private companies or companies belonging to any of the following categories are not eligible to apply for dormant status in Hong Kong:
- Authorized institutions as defined under the Banking Ordinance.
- Insurers as defined under the Insurance Companies Ordinance.
- Licensed corporations under the Securities and Futures Ordinance.
- Entities connected to licensed corporations under the Securities and Futures Ordinance.
- Trustees as defined under the Mandatory Provident Fund Schemes Ordinance.
- Subsidiaries of the above categories of companies.
- Companies belonging to any of the above categories within the past five years.
Registration Procedure for Dormant Companies
Under Section 5 of the Companies Ordinance, Hong Kong private limited companies can declare themselves as dormant companies through a relevant special resolution. Once successfully submitted to the Companies Registry and completed the registration, the company officially becomes a dormant company.
Resuming Company Business
Similar to registering as a dormant company, resuming company business requires another special resolution declaring the intention to engage in an accounting transaction and submitting it to the Companies Registry. Once registered, the company will resume its regular status.
Becoming a dormant company is a company status that have strict requirements to take effect. Before applying, ensure it aligns with your entrepreneurial plans and needs. If you have any doubts, seek professional advice from OneStart Business Consultants.
Note that a dormant company still requires at least one professional company secretary to meet statutory requirements and assist in holding special resolutions. OneStart Business Centre provides a professional team of company secretaries to help you easily complete the application process. If you do not want to become a dormant company, remember not to claim NIL return, and properly complete the tax return. OneStart Business Centre also offers a range of accounting, audit, and tax services. Call 3575 6888 or WhatsApp OneStart Business Consultants to learn more.