Many foreign entrepreneurs who have setup a business in Hong Kong but haven’t really started their business operations often worry that their company may be declared dormant in Hong Kong. Also all businesses in the city must strictly adhere to the ongoing compliance requirements because of which company directors or shareholders need to decide about their future course of action and if no business is taking place, consider declaring the company as dormant.
By law, a dormant company in Hong Kong is a business which does not have any kind of financial transactions during a given year. Transactions could be any kind of payments to be made to service providers, payments receivable, any kind of expenses incurred while operating the business etc. However, it does not include an expense which is mandatory for a company by any Ordinance. Of course it should be noted that if the company has had any accounting transactions with respect to sale or purchase of any kind of asset or even liabilities in that case the company is not considered as a dormant company.
As per the companies ordinance in Hong Kong, a company may become dormant if it authorizes its directors to make the necessary statutory declaration and at the same time hand over a copy of that declaration to the company registrar in the city. Once a company has been officially declared dormant, its ongoing compliance requirements also change effective immediately. Dormant companies do not have to file annual returns or do not have to hold annual general meetings or appoint auditors 開公司. However, they are still required to file their annual tax or profits return with the concerned authorities and within the time period allowed for filing taxes.
Foreign business owners who are still not ready to start their business activities and want to research more on the market are often advised to register a representative office first. Otherwise if they simply incorporate a private limited company but do not have any kind of transactions after that, their company may have to be declared dormant. Of course if they incur expenses while researching the Hong Kong market or conduct marketing activities, then their company is not deemed as dormant and may continue as usual.
Dormant companies which do not have any further requirement of the business may also start with the company liquidation process in Hong Kong. Usually it can take more than 5 to 7 months to completely wind up a company in the city.