Dormant Company Status in Hong Kong: What It Really Saves

At a glance

Eligibility, procedure, the scope of the exemptions and the excluded categories are as set out in the Companies Ordinance and most recently published by the Companies Registry; tax arrangements are governed by the IRD.

How strict is “no accounting transactions”?

Stricter than most people imagine.

The dormancy threshold is not “little business” or “not making money” — it is no accounting transactions at all.

Which means any one of the following puts you outside it:

• Receiving a final outstanding payment
• Paying a monthly bank charge
• Paying the business registration fee (if the company pays it and it goes through the books)
• Running payroll once
• Receiving a small amount of interest

One entry and you are not dormant.

So in practice, a company planning to apply usually has to deal with all its recurring outgoings first — having a shareholder bear them personally, say, or settling them before the effective date.

What does the application involve?

Three steps.

One: confirm eligibility. Certain specified categories of company cannot apply, and you have to confirm that zero transactions is genuinely achievable from the specified date.

Two: pass a special resolution. All the members declare the company dormant from a specified date.

Three: file with the Companies Registry within 15 days. The same deadline as a change of company name or a change of director — miss it and you are in breach; it is not a case of “a bit late doesn’t matter”.

What does it actually save?

Mainly three recurring costs:

• Audit fees — no audit required
• Bookkeeping fees — no accounting records to keep
• The annual return — and with it the risk of late-filing penalties

For a shell company kept purely to hold a name, those add up to a meaningful annual saving.

But to be straight about it: it is not a full exemption. The company still exists, so it still has directors, a registered office, and a legal identity. What exactly still has to be maintained depends on the company’s circumstances and should be confirmed with the Companies Registry — do not assume that dormant means nothing to do.

What about the IRD?

This is where people most often go wrong.

“Dormant company” is a status under the Companies Ordinance, administered by the Companies Registry. The Inland Revenue Department is a different department operating under a different set of rules.

In practice:

• The IRD may still issue a profits tax return. If you receive one, it has to be filed — even if the entries are nil.
• The consequences of not filing are the same as for any other company; see what happens when a tax return is late.
• Business registration arrangements have to be confirmed with the IRD; do not assume they lapse along with everything else.

Which means: having declared the company dormant, somebody still has to watch the letterbox. Receiving a letter from the IRD and doing nothing about it is the classic “I thought we were safe now” incident.

How do you resume trading?

Pass a special resolution declaring that the company intends to enter into accounting transactions, and file it with the Companies Registry.

Everything an ordinary company has to do then comes back — annual return, accounting records, audit, tax filing.

A practical reminder: the resumption date has to be sorted out before the first transaction. You cannot trade first and back-date a resolution. Get the order wrong and the intervening period is “claimed to be dormant while transacting”, which is difficult to explain to either department.

When should you simply close instead?

Dormancy suits the case where you have a specific reason to keep this company — a name, a licence, a banking relationship, a plan to trade again.

Without such a reason — you simply cannot bear to let it go, or do not know how to deal with it — deregistration is a cleaner outcome than feeding an empty shell indefinitely.

The test is simple: ask yourself whether you will use it again within two years. If you cannot answer, it is usually time to close it.

And if you do decide to close, there is a whole wind-down to work through — see what to settle before closing. Leaving it alone and letting it be struck off is the most expensive option of all.

If you are unsure, start with the arithmetic

Dormant, keep going, or close outright — each has its own cost.

Before deciding, work out: what it costs to maintain each year, what dormancy saves, and what closing costs as a one-off. In most cases, the numbers make it obvious.

Want someone to work it out and check whether your company qualifies? Talk to us.

This is general information and does not constitute legal or tax advice. Eligibility, procedure, the scope of the exemptions and the excluded categories are as set out in the Companies Ordinance and most recently published by the Companies Registry; tax arrangements are as most recently published by the Inland Revenue Department.