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OFFSHORE TAX EXEMPTION

OFFSHORE TAX EXEMPTION

If a Hong Kong company’s business activities take place entirely outside of Hong Kong it qualifies for an Offshore Profits Tax Exemption granted by the Hong Kong tax authority which results in the company’s profits being tax-free in Hong Kong.

An example of a company that qualifies for the offshore profits tax exemption

A Hong Kong company using our address as its business address and with a bank account in Hong Kong would enjoy tax-free profits in Hong Kong if

  • The company is being operated by the owner or its employees from an overseas address.
  • The company has no employees based in Hong Kong and the owner or any overseas employees rarely visit Hong Kong.
  • The company negotiates and signs contracts with its customers and suppliers outside of Hong Kong.
  • The company has no customers located in Hong Kong and does not receive payments from customers Hong Kong bank accounts.
  • The company has no suppliers located in Hong Kong and does not make payment to suppliers Hong Kong bank accounts. Please note the company may engage and make payments to professional firms located in Hong Kong including accountants, lawyers and ourselves and this would not disqualify the company from being able to claim the Offshore Profits Tax Exemption as these payments are deemed to be for support services provided to the company rather than a business activity undertaken by the company.
  • The company’s products do not enter Hong Kong.
  • The company provides no services in Hong Kong.

HOW TO CLAIM AN OFFSHORE PROFITS TAX EXEMPTION

If a Hong Kong company satisfies all of the above conditions it is able to apply for the Offshore Profits Tax Exemption when filing its annual Profits Tax Return.

Records must be kept to demonstrate how and where the company operates

The Hong Kong tax authority may seek to verify a company’s claim that it has no business activities taking place in Hong Kong. This would usually take place on a sample basis by the tax authority randomly selecting a sales transaction and reviewing the various activities involved in this transaction to determine where those activities took place. It is therefore advisable to keep complete records to illustrate the fact that all activities take place outside of Hong Kong including emails with customers and suppliers, notes of meetings with customers and suppliers, travel documents to demonstrate any visits to customers and suppliers, copies of sales orders, copies of purchase orders and copies of shipping documents to show the origin and destination of the product supplied to the customer. In summary the company should retain any document that assists the company to demonstrate the company does not engage in any business activity in Hong Kong.