Hong Kong Offshore Company Profits Tax Guide: What are the special tax rules I need to comply with?

Hong Kong Offshore Company Profits Tax Guide: What are the special tax rules I need to comply with?

With the trend of globalisation, more and more companies are choosing to incorporate in offshore jurisdictions to gain more business advantages. However, in the course of their operations, these offshore companies need to be aware of the tax filing and profits tax related issues in Hong Kong. This article will provide an insight into the Hong Kong offshore company profits tax regulations to help you better understand the tax liabilities of offshore companies in Hong Kong.

Is an offshore company subject to Profits Tax in Hong Kong?
There are no corresponding provisions in the Inland Revenue Ordinance. Specifically, it depends on the nature and scope of the offshore company’s business in Hong Kong.

How does the Inland Revenue Department determine whether a company is carrying on business in Hong Kong?
The IRD’s determination of whether a company carries on business in Hong Kong depends on the circumstances of each case. A company may be considered to be carrying on business in Hong Kong even if its business in Hong Kong is not substantial, and the activities carried on by the company’s representative office in Hong Kong are also a factor to be considered.

Generally speaking, if a company carries on a trade, profession or business in Hong Kong from which it derives profits arising in or derived from Hong Kong, it is subject to profits tax, regardless of whether the company is incorporated in Hong Kong or abroad.

What are the tax requirements for offshore companies?
An offshore company carrying on business in Hong Kong is subject to the same reporting requirements as a Hong Kong company.

-it must apply to the Business Registration Office of the Inland Revenue Department for registration of its business and file the profits tax return issued to it.
-If the company has assessable profits for any year of assessment but has not yet received a return from the IRD, it is required to notify the IRD in writing that it is liable to tax within four months after the end of the basis period for that year of assessment.
-The company shall keep sufficient records in English or Chinese to enable the assessable profits to be easily ascertained.
-The company must retain the records for at least 7 years after the end of the transaction to which the records relate.

Do offshore companies have to submit audited accounts?
If there is no statutory requirement for an offshore company to submit audited accounts in its place of incorporation and the company’s accounts have not been audited, the Inland Revenue Department will accept the submission of unaudited accounts in support of the company’s tax return.

However, even if the company’s place of incorporation does not have an audit requirement, the company should submit audited accounts together with its tax return if its accounts have been audited.

For offshore companies based outside Hong Kong but with a branch office in Hong Kong, the IRD will normally accept unaudited branch office accounts as supporting documents without the need to submit audited global accounts. However, an assessor may require the submission of audited global accounts where necessary.

What if the offshore company is run by a non-resident?
If an offshore company carrying on business in Hong Kong is operated by a non-resident, the special tax requirements to which the company is subject are as follows.

-Hong Kong-sourced profits derived by a non-resident from the carrying on of a trade, profession or business in Hong Kong are subject to taxation, either directly or through an agent, with sufficient withholding to cover the tax.
-profits tax is also payable in the above manner on royalties or assignments received by a non-resident person.
-Hong Kong persons (including companies) who sell goods in Hong Kong on behalf of non-residents are required to file quarterly returns with the Inland Revenue Department and pay a sum equivalent to 1% of the amount of the goods sold, or a lower amount as agreed.
-Non-residents who receive money directly or indirectly as a result of a non-resident artist or athlete performing in Hong Kong are subject to special tax assessment and collection procedures.

Please note that whether a company is a non-resident depends on the actual circumstances.

The above information is for reference only. If you have any queries or information on tax filing (personal tax return, corporate tax return, accountant’s tax return), you are welcome to contact our professional advisors and we will provide you with a free quotation and consultation service in due course.

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