Can I declare "0" without an operating company?

Starting from April 1, 2023, the Inland Revenue Department has issued guidelines to all tax representatives and will no longer accept tax returns with zero returns. All corporations and businesses, regardless of the amount of total income, must submit a profits tax return together with all supporting documents, including financial statements (except for inactive companies).

An inactive company (or dormant company) refers to a company that has been registered but has not conducted any business activities or transactions due to various reasons, such as waiting for funds, looking for suitable business opportunities, or suspending operations. In the past financial year, the company may not have any income or expenses, and there may be no changes in assets. If the company is temporarily out of operation or has zero income, and has not been declared to the Companies Registry as a canceled or inactive company, it still needs to entrust a licensed accountant to prepare an annual audit and submit it to the tax bureau together with the tax return.

The general public mistakenly believes that a company has no operations and no profits, so it can file a zero declaration, and does not need to submit supporting documents such as financial statements. In fact, according to the provisions of the Inland Revenue Ordinance, if the company is involved in any business, including any transactions, hiring employees, leasing offices, or involving bank transactions, it has been defined as the company starting to operate business, and it must also report taxes to the tax bureau. In addition, the Companies Ordinance has always stipulated that limited companies must conduct audits every year. Therefore, the Inland Revenue Department's guidance this time fills the gap between the law and previous operations and improves the company's management and maintenance procedures.

Do inactive companies need to file taxes?

In fact, the fact that a company has no income for that year does not mean it is an inactive company, because according to the Companies Ordinance, a company needs to pass a special resolution to declare the company to be inactive, submit the resolution to the Registrar of Companies for registration and submit a tax return before it can become an inactive company. The conditions for applying for an inactive company are the following:

• No business activities (has not started operations or is preparing to cancel)
• No accounting transactions (such as investments, signed contracts)
• No relevant business records in government agencies
• No bank business account Therefore, if an inactive company is involved in any accounting transactions, it will be regarded as "commencing business", which means that it does not meet the conditions for exemption from accounting and auditing.

In addition, at the request of the tax bureau, dormant companies must submit tax returns within one month after receiving the corporate tax returns. If a company fails to file its return on time, it may face fines and other consequences. Because even a dormant company still needs to comply with certain regulatory requirements. For any company registered in Hong Kong, it is best to consult a qualified accounting and tax professional, or click here to contact our tax team, to ensure compliance with all relevant regulations and requirements.