Offshore Profit Claims (Hong Kong entities only)

Hong Kong has a simple scheduler system of tax, in which only specified types of income, namely profits, salaries and property rental income, are taxable.

Profit tax and tax exemption

For corporations the profits tax rate for profits arising from trade, profession or business carried on in the territory is currently 16.5%. However as indicated only income and profits derived from Hong Kong are subject to tax.

Every year once the Hong Kong corporation has been audited, the tax return has to be filed with the Hong Kong Inland Revenue Department. As a company does not have to pay tax in the territory on income derived from outside Hong Kong, a 0% tax rate may apply for so called ‘offshore business’. In order to justify such ‘offshore business’ the Hong Kong entity should consider the following requirements:

• the Hong Kong entity shall not have any employees in Hong Kong
• the Hong Kong entity shall not issue any invoices to and from other Hong Kong companies
• the Hong Kong entity shall not ship any goods through Hong Kong
• business decisions shall be made outside of Hong Kong

Once the Hong Kong entity filed the ‘offshore business’ tax exemption claim, the Hong Kong Inland Revenue Department requests more detailed information about the profit derived from outside Hong Kong.