Category Business management

An inactive company in Hong Kong which does not have any accounting transaction is required to officially declare itself as dormant as it will not be automatically considered dormant.

To declare as a dormant company in Hong Kong, this includes filing a dormant company tax return, maintaining its records, and complying with changes in corporate law. To apply for dormancy, the company needs to pass a special resolution with at least 75% of the shareholders’ votes. Then the company directors must file the special resolution with the Companies Registry within 15 days of passing the special resolution.

“Dormant” is a legal term that applies to Hong Kong company. The company must have “no significant accounting transactions” during the financial year. The costs incurred for the company to keep its annual registration/incorporation do NOT count as signification accounting transactions, for example the registry office address, secretary services, business registration fee etc…

The directors/shareholders/owners are still responsible for handling and pay for the annual return, tax return (if any), and business registration renewal on time, and they must report any changes in its registration to the Companies Registry department.

The benefits of declaring a company dormant include reduced costs and formalities, preservation of the legal entity for future use, better assets protection. The inactive status also save the time and cost for filing an annual return, appointing auditors, preparing audited financial statements. (Audit Exemption and Reporting Exemption for Dormant Company in Hong Kong)

Annual compliance requirements for a dormant company

a dormant status remains a legal entity and is required to follow certain legal regulations.

A dormant company must:

Having a registered office and at least 1 director, 1 shareholder, and a company secretary
Reporting any changes in the company’s officers or registered office with the Companies Registry
Renewing business registration certificate
Filing Profit Tax Returns if required by the Inland Revenue Department
Pay for the above relevant service fees and government fees

Stop being dormant? Re-activate the company.

If you no longer want the dormancy status, you will need to re-activate the company.

You will have to pass a special resolution with the majority of the shareholders’ votes and notify the Companies Registry about the cessation of the dormant status and declare that the company intends to enter into an accounting transaction.

The company will be deemed to have ceased to be dormant by making an accounting transaction even without notifying the Registrar.

https://www.cr.gov.hk/en/faq/local-company/dormant-companies.htm

The costs incurred in operating a business and making sales are known as business expenses. The tax commissioner does not offer a comprehensive list of legitimate startup and small-business deductions due to the scope of their mandate. An expense is deductible if it is “ordinary and necessary” to operate a business in your sector.

For this reason, it is well worth the time to arrange your expenses so that your company can make use of all allowable write-offs, develop a sound financial plan, filing the correct amount in yearly net profits taxes, and doesn’t need to sweat an annual audit.

What Are Business Expense Categories?

Business expense categories are organized groups of expenses that a company incurs while operating. The categories act as a framework for allocating spending, which facilitates tracking where money is spent and enables financial performance analysis. Businesses can acquire a better understanding of their spending patterns and make well-informed decisions about budgeting and resource allocation by classifying related expenses together, such as office supplies, marketing expenditures, or employee salaries.

business expense categories:

1.Advertising and marketing

2.Continuing education

3.Credit and collection fees

4.Bank fees

5.Dues and subscriptions

6.Employee benefit

7.Insurance

8.Maintenance and repairs

9.Legal and professional expenses

10.Office expenses and supplies

11.Telephone

12.Utilities

13.Postage and shipping

14.Printing

15.Rent

16.Salaries and other compensation

17.Travel

18.Business meals

19.Business use of your car

20.Moving expenses

21.Depreciation

22.Charitable contributions

23.Mortgage interest

24.Software

25.Books and magazine subscriptions

26.Medical expenses

27.Licenses and permits

28.Manufacturing or raw materials

29.Retirement contributions

30.Real estate taxes

31.Client gifts

Business owners frequently give themselves a salary, which functions in the same manner as a traditional job. The owner pays personal income tax on the salary, which is recorded as an expense in the company’s books.

How much to pay yourself ?

The tax regulation states that entrepreneurs are permitted to give themselves a “reasonable salary.” However, how can one ascertain what is reasonable?

One of the entrepreneurs said, “I advise paying yourself a modest salary, as modest as you can afford.“

Here are two common methods for figuring out your pay:

• Make your pay based on your own spending.
• Distribute profits as a salary.

When can you start paying yourself?

An owner’s salary is frequently the last item on the small business budget when times are tight. Paying yourself, however, becomes possible as your business’s revenue stabilizes.

To decide if you’re ready to begin paying yourself a salary, posing the following three questions to yourself:

• Do I make a consistent cash flow?
• Do my projected earnings remain consistent?
• Is my company profitable?

You can afford to pay yourself if you can say “yes” to all above three questions.

Other payroll obligations for a Hong Kong company

In contrast to the majority of other nations, the employer in Hong Kong does not withhold individual income tax, or salaries tax. Individuals must pay their taxes on their own instead.

As such, employers in Hong Kong are subject to just two administrative requirements.

1. Keeping payroll records

The following details about their employees must be maintained on file by the company/employers:

• Particulars of the employee;
• Type of work: either full- or part-time;
• Working place;
• The total amount of compensation, including non-cash and other fringe benefits;
• Contributions to the Mandatory Provident Fund or its equivalent;
• The employment contract; and
• Duration of employment.

2. Reporting remuneration paid to an employee

Every year, companies will receive the Employer’s Return from the Hong Kong tax department. Even if the company does not hire any employees, the business has not started, or the business has ceased, it still needs to complete the Employer’s Return and file it with the tax department within a month of receiving it.

Useful link: https://www.gov.hk/en/residents/taxes/salaries/

the city of Shenzhen, which is also known as the “Silicon Valley of Hardware”. The city’s ecosystem of entrepreneurs, talent, suppliers, and factories, which makes it an ideal place for hardware startups.

Welcome to the city of opportunity, Shenzhen

Shenzhen is an excellent place to do business for the Chinese and global export markets. It has various advantages that make it a great place to start or expand a business. The city offers tax incentives, resources, and training for entrepreneurs, and helps businesses develop innovative technologies and products. There is also financial support available to help businesses grow.

Set up a 100% foreign-owned Limited Liability Company

There are steps to set up a company in Shenzhen:

1. Get familiar with local authorities and institutions departments
2. Choose your company name in Chinese
3. Choose the legal entity of your company
4. Appoint a company secretary
5. Rent the registered address of your company
6. Prepare the incorporation documents
7. Submit to the Business License Registry
8. Pay the government fee
9. Get relevant permits and licenses
10. Keep up with your taxes and financial reporting

If you have any questions about how your business can be a success in Shenzhen, please do contact us — it’s both our job and pleasure to assist.