Hong Kong Tax — offshore claims

The territorial concept has always been fundamental to the taxation of profits tax in Hong Kong. Only those profits which arise in or are derived from Hong Kong are liable to profits tax in Hong Kong. Here are some examples where the profits derived by a Hong Kong company may be treated as offshore sourced and non-taxable in Hong Kong:

Trading profits:

A Hong Kong company negotiates and concludes the terms of the purchase and sale contracts with suppliers and customers outside Hong Kong and also carries out the relevant operations outside Hong Kong. It may be possible to claim that the trading profits so derived are non-taxable in Hong Kong.

Manufacturing profits:

A Hong Kong manufacturing business enters into a contract processing or assembly arrangement with a Mainland entity and to entity located elsewhere where the arrangement is similar to the one with the Mainland entity. The Hong Kong manufacturing business will provide the raw materials, technical know-how, management, training and supervision for the locally recruited labour etc. It may be possible to claim that 50% of the manufacturing profits are not taxable in Hong Kong.

Service income:

A Hong Kong company provides services partly in Hong Kong and partly outside Hong Kong. It may be possible to claim that part of the service income is attributable to the services rendered outside Hong Kong and therefore not taxable.

A Hong Kong company appoints overseas agent or service provider to perform services on its behalf outside Hong Kong. It may be possible to claim that the entire service income relating to the services rendered outside Hong Kong is not taxable.

We can assist you to review your current operations to ascertain the possibility of making an offshore claim, to assist you to gather documentary evidence to support the claim and to handle enquiries from the Inland Revenue Department concerning the claim made. We can also assist you to restructure your current operations to enhance tax efficiency.