Hong Kong Offshore profits claim / tax exemption
Corporation
In Hong Kong, offshore profits are generally exempted from Profits Tax. The broad guiding principle (i.e. “one looks to see what the taxpayer has done to earn the profits in question and where he has done it”) is applied for determining the source of income / profits.
The IRD has issued the Departmental Interpretation and Practice Notes No. 21 to provide guidelines on the determination of source of income / profits. There are some common types of tests, for example:-
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• Contract effected test (i.e. where the purchase and sales contracts are effected) is usually applied to trading transactions.
• Operation test (i.e. to identify the operations which produced the profits and where those operations took place) is usually
applied to non-trading transactions.
• Provision of credit test (i.e. where the money is first made available to the borrower) is usually applied to lending of money.
It is worth noting that the IRD usually requests for a substantial amount of information and documents to approve an offshore claim. It is important to ensure that the profits-generating activities are performed outside Hong Kong and sufficient documentation is kept to defend the challenge.
Partial offshore claim
A company may pursue partial offshore claim on its profits, if some of the profits are Hong Kong sourced, while offshore claim is available on non-Hong Kong sourced income / profits.
Foreign Source Income Exemption (FSIE) Regime in Hong Kong
Effective from 1 January 2023, four type of offshore income (i.e., dividend income, interest income, disposal gains, intellectual property (IP) income) are subject to Foreign Source Income Exemption (FSIE) regime. Additional requirements have to be satisfied for tax exemption under Hong Kong Profits Tax even though the income / profit is offshore sourced.
How our services can help
To assist our clients to pursue an offshore claim, we offer the following specialized services:-
✓ Review the operations of the company
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