Don’t Get Caught :
Meet IRD’s New Tax Rules for Dormant Companies
in Hong Kong

In the dynamic landscape of Hong Kong business, staying compliant with tax regulations is more important than ever – particularly for dormant companies. Recent updates from the Inland Revenue Department (IRD) bring new requirements that can affect how these ventures file their Profits Tax Returns.

This tax-friendly blog will break down these changes and provide essential insights to help you navigate your compliance journey and stay on track :

• Stay Compliant, Avoid Penalties
• New Docs for Dormant Companies
• Proactive Steps for Smooth Compliance
• Breeze Through Tax Management with AsiaBC

ICYMI, the Inland Revenue Department (IRD) is the government agency responsible for tax administration in Hong Kong. It oversees the collection of taxes and ensures compliance with tax laws, maintaining the integrity and efficiency of the tax system.

Hong Kong’s Profits Tax rates are set at 8.25% for the first HK$2 million of net profits and 16.5% for profits exceeding that amount. Companies in the city are required to file an annual Profits Tax Return, detailing their income, expenses, and tax computations. This requirement also applies to dormant companies. Despite their inactivity and having no significant financial transactions during the year, they must still comply with tax regulations.

Recent changes have introduced additional documentation requirements for these entities, making it essential for them to understand and comply with the latest IRD regulations to avoid penalties.

As the IRD updates its guidelines, it’s crucial for dormant companies to understand the new documentation needed when filing their Profits Tax Returns. The following requirements must now be submitted :

• Statement of financial position (Balance sheet). A summary of a company’s assets, liabilities, and equity, showcasing its financial standing.
• Statement of comprehensive income (Profit and loss account). This outlines the revenues and expenses, providing insights into the company’s financial performance over the reporting period.
• Auditor’s report. An independent auditor verifies the accuracy and reliability of the financial statements submitted.
• Tax computation for the basis period. This calculation details how the taxable income for the period has been determined, ensuring transparency in tax obligations.

These updates mark a shift from previous practices. Dormant companies can no longer submit only a “zero account” with a declaration of inactivity. Instead, they may now be required to provide a full set of audited financial statements and tax computations to accompany their returns. 

Failure to comply with these new requirements can have serious implications, underscoring the importance of compliance:

• Rejection of Profits Tax Return. The IRD may reject your return if required documents are missing.
• Non-compliance penalties. Financial penalties may apply for failing to meet the new requirements.
• Delay in processing tax filings. Incomplete submissions can slow down the processing of your tax filings.

To navigate the new requirements from the IRD effectively, dormant companies should take proactive measures to ensure compliance:

• Consult with auditors early to clarify the documentation needed and establish a timeline for preparation.
• Prepare all necessary documents well ahead of the tax filing deadline to avoid last-minute issues.
• Double-check submissions to confirm that all required documents are accurate and included.
• Stay updated on regulatory changes to ensure ongoing compliance with any future updates from the IRD.
• Consider hiring a tax representative to facilitate a seamless tax compliance process and provide expert guidance.

At AsiaBC, we specialise in tax compliance, guiding dormant companies through the intricacies of the tax system in Hong Kong. Our experienced team is dedicated to making tax obligations straightforward, ensuring that you can focus on growing your business while we handle the details. With professional consultants by your side, you can trust that your tax responsibilities are managed efficiently and effectively.

Ready to simplify your tax compliance journey? Connect with our team via WhatsApp at  +852 6547 1314 or email us at business@asiabc.com.hk. Let us handle your tax obligations so you can focus on what you do best – growing your business.