When market conditions aren’t favorable, putting your company on hold can help you save resources for better times. In this article, we’ll go over what a dormant company is, the benefits and conditions to be a dormant company in Hong Kong, and how to reactivate your business when ready. We also have a special resolution template you can use to apply for dormant status.
What is a dormant company?
A dormant company is, like a bear hibernating in winter, an entity in stasis, neither conducting business transactions or collecting interest, but simply staying inactive. Companies often choose to go dormant when current market conditions are not sustainable for their business, and/or to prepare for future business opportunities or restructuring without the need to dissolve and re-register a company.
What are the benefits of a dormant company?
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Preserve assets or intellectual property
A dormant company can safely keep assets or intellectual property within the company’s structure.
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Option to resume at a better time
Dormant companies can bide their time and resources until market conditions improve. This can mean waiting out geopolitical tensions, a poor economy, or other major events outside of their control.
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Exempted from submitting the Annual Return form (NAR1)
Dormant companies are exempted from having to submit the NAR1 Annual Return form and having to prepare the financial statements associated with the form.
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Reduced costs
Dormant companies can keep overhead costs down to a bare minimum while they are inactive.
Based on the most recent information from the IRD, dormant companies in Hong Kong can save up to HK$8,000 in fees for each year a company remains dormant.
| Exempted Item | Est. Cost Savings (HK$) |
| NAR1 form submission | 105 |
| NAR1 filing fees from the Company Secretary | 1,500 |
| Dormant Company Audit | 6,500 |
| Total | 8,000 |
Conditions a dormant company must meet
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Not be a company in a specific list of restricted industries
The dormant company status is not available to every company type in Hong Kong. Non-private companies, financial, commodities trading, foreign exchange trading and insurance companies are restricted from the dormant company status, as are MPF trustees, and any subsidiaries under the above companies for five years prior, are restricted from applying for the dormant company status.
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Dormant companies cannot conduct accounting transactions
Accounting transactions are defined as transactions that must be recorded onto the company’s financial statements. These include collecting interest or paying dividends, making purchases or sales, or making payroll.
It is important to note that outside of renewing the company’s business registration certificate, any other transactions made while the company is dormant will remove the company’s dormant status.
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Statutory Obligations must be maintained
Under the dormant status, a dormant company must renew its business registration certificate each year and file any profits tax returns issued by the IRD. Because dormant companies should not have any accounting transactions, the tax return will often be filled out as a ‘Nil’ tax return.
This is to ensure that the dormant company is transparent and held accountable in maintaining their dormant status.
How do I Apply for Dormant Company Status?
A special resolution needs to be put to your company’s shareholders with a pass rate of 75% to apply for the dormant company status. Once the resolution has passed, the application can be made to the Company Registry, effective immediately after submission.
Signup to Our Tax Season Reminder to Download a Free Special Resolution Template
How to Resume Business Activities
When you think you are ready to come out of dormancy and re-activate the company, you can pass another resolution with a majority vote from the shareholders. Once the vote has passed, you can notify the Company Registry about the cessation of company dormancy and declare that your business will resume conducting transactions.
Note that the company will also be considered to have ceased to be dormant the moment it makes a transaction even without notifying the Company Registry.
