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We are always been asked, please set up an offshore Hong Kong company for me. The term “Offshore Hong Kong” is not a form of company available as Hong Kong is not a tax haven city. Form of companies available are sole proprietorship, partnership, private limited company, public company, listed company. There is no “offshore Hong Kong company” strictly speaking. However, businessmen choose to incorporate a private limited company in Hong Kong but operate out of Hong Kong i.e. its business activities are carried on outside of Hong Kong in order to take advantage of Hong Kong’s territorial taxation system which means that tax is charged on local income only. It’s important also to note that offshore status is not automatic. If the Hong Kong company wants to claim its offshore status (i.e. the company conducts business outside Hong Kong and its income is non-Hong Kong sourced) has to supply sufficient evidence for the Inland Revenue Department (“IRD”) to justify its claims (i.e. the burden of proof lies with the applicant) for approval.
To be eligible for offshore status, the company shall have its “place of business” where day-to-day investment/business decisions made are outside Hong Kong. That means, they will have no operations taking place in Hong Kong (no sale or purchase made to/from a Hong Kong customer/supplier, no stocks stored in Hong Kong, no physical presence in Hong Kong, etc.). For offshore claims consideration, please refer to “Creating Substance in Your Business”.
HK Companies Operating Offshore - Procedure of Claims Application for offshore claims should be done at the time when the profits tax return will be filed. For a newly incorporated company, its first profits tax return will usually arrive after 18 months from the incorporation date, you will be given 3 months for filing the tax return together with its audit report.
You should inform your auditor your want to apply for an offshore claims at profits tax return submission.
The Inland Revenue Department will review your application and issue its tax clearance letter for your submission of supporting documents which may include agreements, suppliers and customers’ invoices, shipping documents, email communication, travel records, permanent establishment overseas, etc. You should keep whatever business related documents properly.
After the first letter and your reply, there will be few communication before the Inland Revenue will finally fully approve or partially approve or not approve the offshore status. The whole process can take up to a year or sometimes even more if there is complexity in your business situation or insufficient proof. It is sometimes an effort taking and time-consuming process if you cannot provide sufficient evidence or answer question in an appropriate manner. It is strongly advised to seek for professional advice to reduce your workload and increase chance of success.
Tips Sharing The Chief Executive of Hong Kong SAR has proposed a two tax measures at the Policy Address 2018/19 giving preferential advantages for doing business in Hong Kong. You should incorporate into your business planning by taking the advantage of the policy:
1. First HK$2 million (app US$256,410) of net profits earned by a Hong Kong company – 8.25%. 2. After - standard rate at 16.5% on net profits remains.
Remember, all your business expenses incurred can be deducted from your profits. Loss from last years can be carried forward to future years’ profits. These are useful strategies you should bear in mind as alternatives. These is always a solution!!
Need Assistance INTERSHORES has over 20 years of corporate services experience and can assist you to apply for offshore claims. Please do not hesitate to contact us at info@intershores.hk or by whasapp at (852) 6499 4686.
Whatsapp : (852) 6499 4686 Phone : (852) 2186 6936 Email : info@intershores.hk
Disclaimer: Whilst reasonable care has been taken in provision of information above, it does not constitute legal or other professional advice. INTERSHORES does not accept any responsibility, legal or otherwise, for any error omission and accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, readers are advised to take appropriate professional advice before committing themselves to any involvement in jurisdictions, vehicles or practice. |
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