Exemption of Profits Tax in Hong Kong - Conpak CPA

Exemption of Profits Tax in Hong Kong

The Hong Kong has always pursued a policy of low tax rate and encouragement of business operation, and adopts a territorial source principle of taxation. For anyone doing business in Hong Kong, only profits which are sourced in Hong Kong are taxable. Profits sourced elsewhere are not subject to Hong Kong Profits Tax. Founded in Hong Kong, Conpak is well versed in Hong Kong tax policies, and can help enterprises carry out tax planning and reduce the tax burden by fully utilising the Hong Kong tax exemption policies.

Principles for Determining the Source of Profits

The source of profits is determined based on the matter of fact. Whether profits arise in or are derived from Hong Kong depends on the nature of the profits and of the transactions which give rise to such profits.

Exemption Conditions

  • Sales activities conducted outside Hong Kong (including acquisition, negotiation, and signing of contracts or orders)
  • Procurement activities conducted outside Hong Kong (including acquisition, negotiation, and signing of contracts or orders)
  • Both suppliers and clients are not Hong Kong companies or Hong Kong residents
  • Orders of clients or suppliers are not received, sent, or handled in Hong Kong, or are received, sent, or handled in Hong Kong after the management staff outside Hong Kong approve or send specific instructions
  • Orders are not approved or confirmed in Hong Kong
  • Pricing, decision making, or confirmation of suppliers is not conducted in Hong Kong
  • Marketing, advertising, or sales is not conducted in Hong Kong, no matter whether these activities are completed directly by the company or by an authorised agent
  • Quality control is not implemented in Hong Kong
  • Warehouses are not set up, and goods are not stored in Hong Kong
  • No representative office is set up in Hong Kong
  • No employee is recruited in Hong Kong
  • The payment is effected or collected after the management staff outside Hong Kong approve or send specific instructions
  • The company has sufficient and complete documents to prove the above-mentioned conditions

Application Procedure

  • Determine the business model of the company
  • Collect, sort out, and check materials
  • Evaluate the possibility of exemption
  • Submit an exemption application
  • Reply the inquiry letter from the Inland Revenue Department (IRD)
  • Adjudicate on the tax exemption

Required Time

12-24 months (depending on the company business model and complexity)

Should you have any enquires about Exemption of Profits Tax in Hong Kong, please complete the form below and we will reply to you soon.

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