How to get NO TAX in Hong Kong legally?
To give you a more precise picture of how the profits derived by a Hong Kong company may be treated as offshore sourced and non-taxable in Hong Kong, and what information we need to prepare for the offshore claim, we would like to point out the following outlines which are extracted from our successful cases of our clients.
- Trading Business
Company A is engaged in the trading of lighting products. It’s requested to provide the following information to the Hong Kong Tax Department – Inland Revenue Department (IRD) for the tax exemption application.
- Business establishments
- To provide an organization chart with full details of the company’s establishments in Hong Kong and overseas if any.
- For the overseas establishment, describe in detail its functions and specify its authorities if it was involved in the negotiations with the buyers and suppliers. If there was no establishment overseas, provide details of any other group companies or independent third parties involved in the sale and purchases of the company’s products, their respective responsibilities and authorities.
The company had no permanent establishment and employee in Hong Kong. The company also had no other establishment in Overseas. It only maintained a corresponding address as its registered office in Hong Kong which is the address of CORE address and company secretary. All the company’s business activities including negotiation and conclusion of the sale and purchases transactions with the customers and suppliers were performed by the company’s director in Overseas and offshore. He did not visit Hong Kong to undertake any business activities on behalf of the company during the period.
- To describe the company’s products and the mode of trading
The company is requested to provide full details of how the company carried out the claimed offshore trading transactions.
- The company imported its products from China to the customers in Overseas;
- The role of the company was to act as an intermediary between the supplier in China and the customers in Overseas.
- The company director was the responsible person to negotiate and conclude the purchase transactions with the suppliers in China via direct meetings, phone calls and emails. He did not undertake any business activities on behalf of the company in Hong Kong. The director is required to provide copies of his passport and the statement of travel record from Hong Kong immigration Department to show the days and purpose of his visit to Hong Kong.
- Information about the company purchases
- To provide details of the suppliers including their company names, address, relationship with the company, and the total purchase amount during the period.
- To describe how, where and by whom the company maintained business relationship and placed order with the suppliers, and to provide any formal distribution agreement and purchase contracts.
- Information about the company sales
- To provide details of the customers including their company names, address, relationship with the company, and the total sales amount during the period.
- To describe how, where and by whom the purchase orders from the customers were initiated, processed and placed order with the company; and how, where and by whom the shipment of goods from suppliers to customers was arranged, whether the goods pass through Hong Kong.
- Sample documents relating to the two largest sales transactions
- To provide the sample documents including sales invoice, purchase invoice, bill of lading, remittance advice of supplier’s settlement, and any email correspondence with the supplier in relation to this transaction, etc.
- To describe in detail of the workflow of activities of the two sample transactions including how, where and by whom the purchase and sales activities were performed, from negotiation, conclusion of contracts, issuance of invoices, delivery of goods, to final settlement of accounts.
Since all the above information shows that company A has negotiated, concluded the purchase and sales transactions, and carried out all the business activities outside Hong Kong, the resulting profits were therefore approved to be offshore in nature.
- Service income
Company B is engaged in the inspection and consultancy services. It’s requested to provide the following information to the IRD for the offshore claim.
- Business establishments
- To provide an organization chart with full details of the company’s establishments in Hong Kong and overseas if any.
Same as company A, this company had no permanent establishment and employee in Hong Kong. The company also had no other establishment in Overseas. It only maintained a corresponding address as its registered office in Hong Kong which is the address of its company secretary. All the company’s business activities including negotiation and conclusion of the service agreements with the customers were performed by the company’s director in Overseas. He did not visit Hong Kong to undertake any business activities on behalf of the company during the period.
- To describe how the functions carried out by the company in order to earn the service income, as below:
- How the company contacted the potential client/customer;
- How the nature of services were negotiated and concluded;
- How the services were rendered to the client;
- How the service income were received.
- In respect of each of the payers, the company is requested to provide a copy of the service agreement (if any); the name and address of each payer; its relationship with the payer; the type of service performed; the date and location that the services were performed; and the basic of calculating the service income.
- The company is requested to provide the full set of documents in relation to the largest amount of service income earned during the period under review. It includes the correspondence of payer, the negotiation process of the service agreement, the invoice issued by the company to the payer, the basis of computation, the travel schedule of the responsible persons showing the date of and purpose of their visiting Hong Kong during the period, and the bank settlement of the invoice.
- The company is also asked to provide the detail information about the expenses attributable to the earning of the offshore income.
As all the above information showed that company B had negotiated, concluded the service agreement, and performed all the services outside Hong Kong, the resulting profits were therefore approved to be offshore in nature.
We hope the above information would give you some guide lines on how your company’s operations could meet the requirements as offshore income in Hong Kong. We may assist you to gather the above information and reply the enquiries from the Hong Kong Inland Revenue Department concerning the offshore claim.