Audit Exemption and Reporting Exemption for Dormant Company in Hong Kong – According to Hong Kong Law

Audit Exemption and Reporting Exemption for Dormant Company in Hong KongAccording to Section 447 Cap. 622 of the Hong Kong Companies Ordinance (the “Ordinance”), a private company in Hong Kong can declare as a dormant company by passing a relevant special resolution and submitting necessary documents to the Registrar. A dormant company will be exempted from complying certain requirements as stipulated in the Ordinance, which will, in turn, enables an inactive company to be retained at a minimum maintenance cost. This article will walk you through the Audit Exemption and Reporting Exemption for Dormant Company in Hong Kong requirements as stipulated in the ordinance regarding the conditions, procedures, and consequences for a company to apply for dormant status.

 

What Is a Dormant Company? This Company Can Apply for Audit Exemption and Reporting Exemption

As the name suggests, a dormant company refers to a Hong Kong limited company with no accounting transactions during a financial year. According to section 2 of the Companies Ordinance, “accounting transaction”, in relation to a company, means a transaction that is required by section 373 to be entered in the company’s accounting records, excluding a transaction arising from the payment of any fee that the company is required by an Ordinance to pay.

A dormant company, according to Section 447 Cap. 622  of the Ordinance, is exempted from complying with the following requirements:

  1. Filing of an annual return and holding of an annual general meeting;
  2. Preparation of audited financial statements and appointment (or resignation or removal) of auditors.

There is no specific “deadline” for a company to stay dormant – a dormant company can stay inactive for as long as necessary.

 

Reasons for Application for Dormant Status

Companies can be dormant for many different reasons – be it to safeguard a company name, or to get ready for the future project, or to hold an asset or intellectual property. Another reason to go dormant is to maintain an inactive company at the lowest possible maintenance cost.

 

Dormant Status Application Procedures

As mentioned above, a company needs to pass a special resolution authorising its Director(s) to make and deliver to the Registrar of Companies a statutory declaration to the effect that the company to become dormant.

According to Section 2 of the Ordinance, the dormant company must not enter into a relevant accounting transaction. Please note that “transaction” means transaction as required by Section 373 of the Ordinance that to be entered in the company’s accounting records, excluding a transaction arising from the payment of any fee that the company is required by an Ordinance to pay.

Any accounting transactions will result in the cessation of the exemption conferred to a dormant company from the date the relevant accounting transaction takes place.

 

Responsibilities of Officers of a Dormant Company

A dormant company’s officers have similar responsibilities as for those of a normal company. The directors and secretary will manage the company on behalf of the shareholders or members. They are responsible for holding meetings and ensuring timely submission of all the necessary returns and other documents to Companies Registry.

 

Continuing Obligations of a Dormant Company

The laws mandate that a dormant company must:

  1. Maintain 1 director, 1 shareholder, a company secretary and a registered office;
  2. File the report on any changes in its officers or registered office to the Registrar;
  3. Renew its business registration certificate;
  4. Pay the annual business registration fee to the Hong Kong Government; and
  5. File Profits Tax Return (should there is one issued by the Inland Revenue Department)