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1. What is a Zero Operation Company?

A zero operation company refers to a company that is inactive, with no business activities, and does not generate any income or expenses, such as sales, purchases, or rent payments. Nonetheless, such companies are still required to file taxes according to Hong Kong tax regulations.

Difference from "Inactive Companies"

According to the Companies Ordinance (Chapter 622), if a company has no accounting transactions and its bank accounts show no activity, it can apply to be classified as an "inactive company." Once approved, the company is exempt from preparing financial statements and submitting audit reports. However, inactive companies must meet specific conditions and be approved by the Companies Registry.

For more information about "inactive companies," please refer to the following blog: Complete guide to first time tax filing for novice companies! Inventory of FAQ about Tax Returns

Comparison of Zero Operation Companies and Inactive Companies

The main advantage of inactive companies is the simplification of financial and tax administrative burdens, but they must apply to the government to resume operations later. In contrast, while zero operation companies are required to file taxes, they retain flexibility in operations. If a company plans to resume operations in the short term, choosing the zero operation model is more convenient.

2. Tax Filing Requirements for Zero Operation Companies

Do Zero Operation Companies Need to File Profits Tax?

Yes! According to the Inland Revenue Ordinance (Chapter 112), all Hong Kong companies must submit a profits tax return (BIR51) to the tax department. If a company has no business activities during the tax year, it must declare its zero operation status on the tax return and submit relevant supporting documents to confirm that the company has no transaction history.

Common Audit Areas for Zero Operation Companies by the Tax Department

Even if a company declares itself as zero operation, the tax department may still require verification, with audit areas including:

• Whether the company has any transaction history in its bank accounts
• Whether any rent or salaries have been paid
• Whether there have been any contracts or transactions related to business
• Whether there are any asset purchases or sales

If it is found that the company provided false information when declaring its zero operation status, it may face fines or even criminal prosecution.

3. Frequently Asked Questions

Does a Limited Company that Has Never Operated Still Need an Audit?

Yes! Even if a limited company has never operated, it must comply with the requirements of the Companies Ordinance by hiring a certified public accountant for an audit and obtaining an auditor's report. This is a legally required step to ensure transparency and compliance in the company's financial records.

What are the Consequences of a Zero Operation Company Failing to File Taxes on Time?

Even zero operation companies must submit their profits tax returns on time and declare their zero operation status. If they fail to submit on time, the tax department may issue a fine notice or even require the company to submit any missing documents.

4. Conclusion

A zero operation company does not equate to ignoring statutory tax filing and auditing responsibilities. Correctly understanding the tax requirements for zero operation companies can not only avoid legal disputes but also lay a solid foundation for future business development. If you have any questions regarding tax filings for zero operation companies or applications for inactive companies, it is advisable to consult professional accountants or tax advisors to ensure your company operates in compliance.

OneStart Business Centre offers one-stop "Accounting, Auditing, Tax Filing" services, including audits, tax filings for zero operation companies, and applications for inactive companies. Our professional accounting team, trusted by customers over many years, ensures a smooth and efficient accounting and auditing experience. We can also serve as your tax representatives, providing professional advice. To learn more about our plans, please call 3575 6888 or contact us via WhatsApp for more information.

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