exemption

Hong Kong operates a territorial tax system, under which only profits that have a source in Hong Kong are assessable to profits tax (commonly referred to as “onshore profits”).Offshore profits generally are not subject to profits tax. Global CPA can truly claim to be experts in this field.

Pursuant to the general charging provision of Section 14(1) of the Inland Revenue Ordinance (‘HK-IRO’), an income is NOT liable to profits tax (corporate income tax) if it is (i) not derived from a trade, profession or business carrying on in Hong Kong and/or (ii) not arising in or derived from Hong Kong (i.e. sourced outside of Hong Kong). However, it is important to realize that any such offshore non-taxable claim made is usually still being examined by the Hong Kong Inland Revenue Department (‘HK-IRD’).

The broad guiding principle in determining the source of profits is that “one looks to see what the taxpayer has done to earn the profits in question and where he has done it.” In other words, it is necessary

The broad guiding principle in determining the source of profits is that “one looks to see what the taxpayer has done to earn the profits in question and where he has done it.” In other words, it is necessary

Once the offshore non-taxable plan is in place, Global CPA can monitor it year by year and adjust the plan for changing circumstances, personal objectives, and changing tax laws for global tax efficiency.

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:

Offshore Industrial expert

a. 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.

b. 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 labor etc. It may be possible to claim that 50% of the manufacturing profits are not taxable in Hong Kong.

c. 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.

Other Industrial Offshore claim

d. Sales or purchase commission
e. Rental receipts from real property
f. Profits from the sale of real property
g. Profits from the purchase and sale of listed shares
h. Profits accruing to a business(other than a financial institution, as defined)from the sale of unlisted securities issued outside Hong Kong
I. Royalties received by a business
J. Royalties on intellectual property received from Hong Kong by a non-resident
k. E-commence
l. Interest accruing to a business (other than a financial institution)

Global CPA provides foreign investors with guidance on how to best establish and carry on operations in Hong Kong and Mainland China. In particular, Global CPA assist:

• Advise on tax efficiency structure under offshore non-taxable scheme

• Perform a preliminary study of client’s case and making recommendation for offshore non-taxable claim

• Conduct periodically a thorough review and adjust of the offshore non-taxable claim

• Advise on retain sufficient information and documents to support the offshore non-taxable claim

• Apply for an advance ruling with the HK-IRD in order to obtain approval on the offshore non-taxable claim.

• Prepare a tax declaration with the HK-IRD in order to obtain approval on the offshore non-taxable claim.

• Prepare a tax objection for the unaccepted of offshore non-taxable claim if necessary

• Prepare a tax declaration with the HK-IRD in order to obtain approval on the offshore non-taxable claim of individual

• Preparing a claim for tax refund of previous tax paid under offshore non-taxable scheme

Global CPA 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.