It is a practice of the Inland Revenue Department not to insist on a company filing audited financial statements when the company reports that it has not commenced business or that it has ceased operation in the interim.
This has created a misperception that companies incorporated in Hong Kong do not have to prepare audited financial statements when there is no business transaction.
This is nothing further from the truth. Hong Kong incorporated companies have to follow all the statutory requirements prescribed by the Companies Ordinance. There is no exemption from preparing audited financial statements notwithstanding the fact that the Inland Revenue Department does not ask for its filing.
Definition of ‘dormant company’ is in the Companies Ordinance. A company must not have any accounting transaction and the required filing procedure must be complied with before it can call itself as ‘dormant’. Once done, preparation of audited financial statements and filing of annual return are exempted.
However, if there are changes in directors, company secretary and registered office address, these changes still have to be reported to the Companies Registry. Payment of all government fees should continue.
When a ‘dormant company’ wishes to enter into an accounting transaction, filing to re-activiate itself must be done prior to the transaction being done.
Quite often, directors forget their ‘dormant companies’ entirely and lose all their records. Therefore, it would be advisable to consider dissolving these companies if they are indeed not required for business transactions in the future.