There is only one kind of HK tax for a HK company i.e. Profits Tax which is at 8.25% for the first 2 million HK$ assessable profits and 16.5% for the rest. There is no VAT, and no tax on dividend or interest income in HK.
Basically a HK company is not subject to HK taxes if its operations are not carried out in HK. In determining whether a HK company's operations are carried out in HK, all the company's operations (starting from customers' enquiries about product prices, place of orders from the customer, place of a purchase order to completion of sale and purchase) will be considered to find out which processes are carried out in and outside HK. The location of bank accounts is insignificant for this matter. For instance, a HK trading company with a bank account in HK will not be subject to HK taxes if :
- it has no real office in HK and only uses our office as a registered office;
- it has an overseas office in which the company's directors and staff are working;
- it has no staff in HK, its staff and directors rarely come to HK, e.g. about 2 weeks per annum;
- it negotiates and concludes contracts with suppliers and customers outside HK;
- it has no HK suppliers and customers;
- shipment does not go through HK and arrangement of shipment is not done in HK; and
- physical inspection of goods is not carried out in HK.
We have assisted a lot of our clients to have successfully claimed for taxes not subject to HK taxes and some of them even have HK customers, HK suppliers or goods going through HK. However any HK involvement will increase the possibility of being subject to HK taxes.
Whether profits are subject to HK taxes is a matter of fact not a matter of law, so it depends on the evidence you can provide. As the HK Inland Revenue Department will select some transactions and request all the documents relating to these transactions to be submitted to ensure that all the company's operations are carried out outside HK. Therefore you are recommended to keep all the correspondence for all the transactions e.g. faxes, emails, telephone bills, memos of meetings, purchase orders, sales orders, shipping documents. You also need to retain the original or copies of your old passports so that you can provide the dates you visit HK.
A company can only submit a claim for offshore income together with its audited accounts and profits tax return after it has commenced business and not earlier than 18 months from its incorporation date.
The situations of an offshore company (e.g. Anguilla or BVI company) are different. If all its directors, shareholders and staff are not HK residents, it will be considered same as other overseas companies even though its bank account is maintained in HK provided that it has no staff nor director working in HK. If it has HK suppliers or customers, it will only be considered as doing business with HK companies not doing business in HK.
An individual receiving salaries from a HK source will be wholly subject to HK taxes unless all the services under the employment are rendered outside HK. In determining whether all the services are rendered outside HK, the individual must be a visitor (i.e. not having a form of permanent base e.g. a home or property) and visits HK not more than 60 days in the year of assessment. This is not applicable for Government employees, seafareres nor aircrew.
N.B. It should be noted that the information is presented in summary form for reference only and readers are advised to seek professional advice before formulating business decisions.
Details of HK Profits TAX
You may also be interested to view Details of HK Profits Taxes.