According to the Inland Revenue Ordinance, only profits arising in or derived from Hong Kong are subject to profit tax. In the case that the income of the company is generated outside of Hong Kong, you may be exempted from Hong Kong profit tax. In this article, we will go through the requirements and procedure for profit tax exemption application.
What is a Hong Kong offshore company?
To get offshore status for your company in Hong Kong, you need to prove that your business doesn’t have any presence in Hong Kong and that you are not selling to local people or businesses in Hong Kong.
The difference between Hong Kong profits and offshore profits is made by reference to gross profits arising from individual transactions.
Here are some examples that would qualify your business for an offshore profit tax exemption:
- All your business income is generated outside of Hong Kong;
- You have no customers (people or business) or suppliers for your business in Hong Kong;
- Your business (including your employees) is operating outside of Hong Kong;
- Your service and products are not available in Hong Kong;
- The day-to-day business decisions and service agreements are signed outside of Hong Kong.
More information can be found in IRD’s official website.
Claim your offshore status
If you fulfill all the requirements to be an offshore company, you can make an offshore claim and apply for profit tax exemption.
In order to apply for your offshore status, you should be ready to prove that the profit from a transaction was derived out of Hong Kong, including business incorporation information, the passports of all company directors, company invoices and other relevant documents.
The offshore claim status will stay effective in the course of 3 years.
Apply for Profit Tax Exemption Annually
Even with offshore company status, a yearly audit on your accounts is still required and you will still need to submit documents with the profit tax return to IRD. However, after you have gained the offshore status, your auditor will take this into account when undergoing the audit.
When submitting your profit tax return, you need to submit a certified copy of the Financial Statement along with Profit and Loss Account, the tax computation and the offshore tax exemption application.
To examine your offshore claim, the IRD may review your transactions to investigate whether the offshore claim is valid. Therefore, it is recommended to keep your complete transaction records, your service agreements, your meeting summaries, travel receipts, purchasing receipt, shipping documents and other business related documentation ready.
Do you need help with your offshore claim application? Contact us to learn more! FastLane is a CPA firm that can help you handle all matters in accounting so you can focus on other areas of your business.