Nil filing is a common misconception among owners of non-operating companies. Many start-ups mistakenly believe that if a company has not done any business, it does not need to submit a tax return, or that it can submit a blank return or fill in “0” in every field.
This article explains the requirements for nil filing and for applying to become a dormant company, helping you avoid incorrectly filing a “zero return”. It will also clarify the tax responsibilities under nil filing and explain how to file taxes when your company has no income, so you can handle company tax filing correctly.
What is a Nil Tax Return?
Nil filing (English: Nil Tax Return) refers to entering “0” in all fields on the Profits Tax Return. The company also does not conduct an audit for that financial year, and when submitting the BIR51 Profits Tax Return, it does not submit an audit report, profit and loss statement, tax computation, or other supporting documents.
Further reading: Accounting and Tax Filing Services
Can a company with no business/no operations file a nil return?
No. Even if the company has no operations or income, it does not meet the requirements for nil filing unless it has successfully applied to the Companies Registry to be a “dormant company”. It must still prepare an audit report and other supporting documents, and it cannot make an IRD nil filing when submitting the tax return to the Inland Revenue Department.
Nil Filing Policy: New tax return arrangements starting from 2023
According to paragraph 36 of the Tax Representative Circular issued by the Hong Kong Inland Revenue Department on April 1, 2023, all corporations—except those that are dormant under the Companies Ordinance (Cap. 622)—must submit audited financial statements together with their tax returns.
Accordingly, the IRD also, starting from the2022/23financial year, no longer accepts Profits Tax Returns submitted by non-“dormant companies” in the form of a nil return.
Source: Tax Representative Circular
Requirements for applying to become a “dormant company”
If a company wishes to submit a tax return as a nil return, the primary requirement is that it has become a “dormant company”. To apply to the Companies Registry to be registered as a “dormant company”, the following requirements must be met:
- It has not purchased or rented any property in Hong Kong, nor authorised others in Hong Kong to use movable property to obtain rent or other income;
- It has not opened a bank account;
- It has not carried out any form of business activity;
- It has not employed any staff;
- It has not authorised others to use any patents, trademarks, or designs.
In addition to meeting the above requirements, the company must also pass a special resolution of shareholders before it can apply to the Companies Registry to be registered as a dormant company.
Only after a successful application may the company submit its tax return to the Inland Revenue Department under the name of a “nil return”.
Further reading: How to Convene a Shareholders’ Meeting | Directors’ Duties and Responsibilities
How should a company with no income file taxes?
If the company does not meet the requirements for nil filing and has not applied to become a dormant company, the tax filing procedure is the same as for an operating company. The tax filing process for a non-operating company is as follows:
- Accounting: prepare a profit and loss statement
- Audit: prepare an audit report
- Complete the tax return: fill in all fields of the tax return based on the company accounts
- Submit the tax return: submit the completed Profits Tax Return together with the audit report, tax computation and supporting documents to the Inland Revenue Department
In what situations can a company not file a “zero return”?
The key point is whether the company meets the definition and requirements of a “dormant company”. Even if the Companies Registry record shows the company is in dormant status, if any of the following applies, the company is deemed to require a formal audit and cannot file a “zero return”:
- There are transactions recorded in the company’s bank account (except for payment of the Business Registration Certificate or government prescribed fees);
- There are import/export activities or customs declaration records;
- There are sales or procurement transactions with Hong Kong customers;
- The company employs full-time or part-time staff in Hong Kong;
- The company has authorised others to use patents, trademarks, or other intellectual property;
- The company receives rent in Hong Kong or sells products on consignment;
- The company participates in operating activities such as trade fairs, online promotion, etc.;
- Any other profits from Hong Kong or sourced from Hong Kong;
- There are intercompany fund movements within a corporate group.
Frequently Asked Questions
What is “nil filing”? Can a company with no income file a nil return directly?
Nil filing means entering “0” in all fields on the Profits Tax Return (BIR52) and not submitting an audit report.
The answer is: No.
This is a common misconception. Under the new arrangements implemented by the IRD from April 1, 2023, unless the company has formally applied to the Companies Registry and become a “dormant company”, itcannotfile a nil return directly, even if it has no operations or income, and must submit audited financial statements.
What requirements must be met to apply to become a “dormant company”?
- No business activity: No business activities of any kind are carried out.
- No bank account: No bank account is opened (except for payment of government fees).
- No property: No property is purchased or rented in Hong Kong, and no authorisation is given to others to use movable property to generate income.
- No employees: No full-time or part-time employees are hired.
- No IP transactions: No authorisation is given to others to use patents, trademarks, or designs.
If a company does not meet the “dormant company” requirements but genuinely has no operations, how should it file taxes?
- Accounting: Prepare a profit and loss statement (even if the figures are zero or there are only administrative expenses).
- Audit: Engage a licensed accountant to conduct an audit and prepare the audit report.
- Complete the tax return: Fill in all fields of the tax return based on the company accounts.
- Submit documents: Submit the completed Profits Tax Return together with the audit report, tax computation and supporting documents to the Inland Revenue Department.
In what situations can a company absolutely not file a “zero return”?
- Bank account transactions: Any income or expenditure other than payment of business registration fees or government fees.
- Import/export records: Customs declaration or logistics records exist.
- Local business: Sales or procurement transactions with Hong Kong customers.
- Employees hired: Full-time or part-time employees are employed in Hong Kong.
- Operating activities: Participation in trade fairs, online promotion, selling products on consignment, or collecting rent.
- Intercompany transactions: There are fund movements between companies within the corporate group.
What are the consequences of incorrectly filing a nil return when submitting a tax return?
- Submission of additional documents: Required to submit audit reports and accounts for previous years.
- Penalties: May be subject to tax penalties.
- Legal liability: Serious cases may involve criminal liability.
- Recommendation: If you discover an incorrect nil filing, you should immediately appoint a tax representative to handle the matter and proactively contact the IRD to rectify the error.
Conclusion
Many start-ups mistakenly believe that “no operations” means they can “file a nil return”. In practice, unless the company has successfully applied to become a “dormant company”, it must still submit an audit report and complete tax filing documents even if it has no income. Since 2023, the IRD has explicitly required that non-dormant companies must not file a “zero return”. To become a dormant company, multiple requirements must be met, such as having no bank account and no business activities, and a shareholders’ resolution must be passed. Failure to file taxes truthfully may result in a tax investigation or criminal penalties. Companies should clearly understand their tax responsibilities and avoid misreporting.
