Declaring a Hong Kong Company Dormant Process and Rules

Declaring a Hong Kong Company Dormant: Process and Rules

A Hong Kong company that has ceased trading or has never started business may apply for dormant status under the Companies Ordinance (Cap. 622). The process is set out in section 5 of Cap. 622. It requires a formal resolution, a filing with the Companies Registry, and a clear understanding of what obligations survive the declaration.

Hong Kong Dormant Company Declaration

The declaration of dormancy is a statutory process. A company is dormant if it has no significant accounting transaction during a relevant period. "Significant accounting transaction" means one that would be required to be entered in the company's accounting records under section 373 of Cap. 622. The company must pass a special resolution stating that it is dormant and that it intends to remain dormant. File the resolution with the Companies Registry using Form ND2A (Notice of Special Resolution).

The special resolution must be passed by at least 75% of the votes cast by members entitled to vote. Once passed, deliver the resolution to the Companies Registry within 15 days. The declaration takes effect on the date the resolution is passed, not the date of filing. The company must also notify the Inland Revenue Department of its dormant status, though the Companies Registry forwards the information to the IRD in most cases.

Hong Kong Company Dormant Status

Dormant status under Cap. 622 section 5 applies only to private companies limited by shares or private companies limited by guarantee. A dormant company is exempt from certain statutory obligations, most notably the requirement to have its financial statements audited. The audit exemption applies for any financial year during which the company is dormant. The company must still prepare financial statements and keep accounting records.

The company must ensure that it has not carried on any business or had any significant accounting transaction during the period of dormancy. If the company later carries on a transaction, it ceases to be dormant and must notify the Companies Registry. Resume trading by passing an ordinary resolution to that effect and filing the resolution.

Hong Kong Dormant Company Annual Return Exemption

A private company that has declared itself dormant is exempt from delivering an annual return. This exemption is found in section 662 of Cap. 622. The company does not need to file Form NAR1 for any year in which it is dormant. One timing rule matters: if the company declares dormancy after the 42-day period for filing the annual return has passed, it must still deliver the annual return for that year. The exemption applies only to years that are fully dormant.

If a company's return date is 1 March and it passes the dormancy resolution on 15 April (more than 42 days later), it must still file the NAR1 for that year. Pay the registration fee of HK$105 if filed on time, or the higher registration fee if late. After that year, no further annual returns are due while the company remains dormant.

Hong Kong Company Dormancy Rules

The rules governing dormancy are set out in Part 3 of Cap. 622. Key rules include:

• The company must not have any significant accounting transaction during the period of dormancy. Certain transactions are excluded, such as the payment of filing fees, the payment of penalties, and the allotment of shares to satisfy a pre-existing right.
• The company must maintain its registered office and company secretary. Dormancy does not exempt the company from these requirements.
• The company must keep its significant controllers register (SCR) up to date. The SCR requirement applies to all Hong Kong companies, including dormant ones. Designate a representative to assist law enforcement with access to the register.
• The company must renew its Business Registration Certificate annually or every three years. The Business Registration Ordinance (Cap. 310) does not provide an exemption for dormant companies. The certificate is issued by the Inland Revenue Department, not the Companies Registry.
• The company must file annual profits tax returns with the IRD. The IRD typically accepts a "nil" return for dormant companies. Confirm your status with the IRD directly.

Ongoing Obligations for a Dormant Company

A dormant company is not exempt from all compliance. The following obligations remain:

• Business registration renewal: Renew the Business Registration Certificate on time. Failure to do so attracts a penalty of up to HK$5,000.
• Significant Controllers Register: Maintain the SCR at the company's registered office or a prescribed place in Hong Kong. The register is not open to public inspection but must be available to law enforcement on request.
• Designated representative: Appoint a designated representative to assist law enforcement with access to the SCR. This can be a director, company secretary, or an external service provider.
• Annual return for the year of dormancy declaration: If the declaration is made after the 42-day period, file the NAR1 for that year.
• Accounting records: Keep accounting records for at least seven years under section 373 of Cap. 622, even if dormant.
• Change of particulars: File any change to the company's directors, company secretary, or registered office with the Companies Registry using the appropriate forms (e.g., ND2A for director changes).

Filing the Dormancy Declaration

The formal steps are:

1. Pass a special resolution declaring the company dormant. The resolution must state the date from which dormancy takes effect.
2. File the special resolution with the Companies Registry using Form ND2A within 15 days of passing the resolution.
3. Notify the Inland Revenue Department of the dormant status. The Companies Registry may forward this information, but confirm with the IRD directly.
4. If the company has already passed the 42-day period for the annual return, file the NAR1 for that year before the dormancy exemption applies to subsequent years.

The Companies Registry does not charge a fee for filing the special resolution. If the company must file the annual return for the year of declaration, the standard registration fee of HK$105 applies if filed on time, or the higher registration fee if late.

Ceasing to Be Dormant

A company ceases to be dormant if it carries on a significant accounting transaction. Pass an ordinary resolution to that effect and file the resolution with the Companies Registry. The company must also resume filing annual returns and having its financial statements audited. The audit exemption for the dormant period does not apply to the year in which the company resumes trading.

If the company wishes to be struck off the register entirely, apply for deregistration under section 750 of Cap. 622. Dormant status is not a substitute for deregistration. A company that remains dormant indefinitely must still comply with the ongoing obligations listed above.

Practical Considerations

• A dormant company is still a legal entity and can be sued. Directors remain liable for their duties under Cap. 622.
• Ensure that the registered office address is current and that the Companies Registry has the correct contact details.
• Review the SCR annually to confirm that no new significant controllers have emerged.
• If the company holds assets, such as bank accounts or property, it must still account for them in its financial records.

For further information, refer to the Companies Registry's guidance note on dormant companies and the relevant provisions of Cap. 622. The Companies Registry website (cr.gov.hk) provides the prescribed forms and fee schedules. The Inland Revenue Department (ird.gov.hk) handles business registration and profits tax matters for dormant companies.