Claim for offshore income - The Territorial Source Principle of Taxation
Hong Kong adopts a territorial basis for taxing profits derived from a trade, profession, or business carried on in Hong Kong. Profits Tax is only charged on profits which arise in or are derived from Hong Kong. In simple terms this means that a person who carries on a business in Hong Kong but derives profits from another place is not required to pay tax in Hong Kong on those profits.
Under the Inland Revenue Ordinance, a person is chargeable to Profits Tax under the following conditions -
- the carries on a trade, profession or business in Hong Kong;
- the trade, profession or business derives profits; and
- the profits arise in or are derived from Hong Kong.
There are a lot of conditions to be an offshore company (operated outside Hong Kong)
a. No employee in Hong Kong
b. No office in Hong Kong (excluded virtual office)
c. No contract has been signed in Hong Kong
d. The goods/services do not re-export and re-packed in Hong Kong
e. No business partner in Hong Kong (for here, partner means Suppliers and customers)
f. Business decision was made outside Hong Kong
g. All profit must come from outside Hong Kong, not website at Hong Kong.
The “offshore claims” can be made when the company submits the Profit tax return and the audit report. The IRD will send a letter of “Question to determine source of trading profit” to the company. The company is required to answer the questions in details. The Inland Revenue Department will only grant an offshore non-taxability after examination of the Company's account and inquiring into the detail operations of the Company.
If the “offshore claims” is granted, the profit is not taxable for the specific year.
We assist our client to claim an offshore profit during auditing. And we also assist our client to review and advise the answer of the letter from IRD “Question to determine source of trading profit”. Our changes of reviewing and advising the answer of ““Question to determine source of trading profit” is from USD 150, depends on the complexity and the number of questions.
