Taxation in Hong Kong

When will a Hong Kong company receive its Profits Tax Return?

The Hong Kong Inland Revenue Department (IRD) usually issues the first Profits Tax Return to the newly incorporated company about 18 months after the date of incorporation. For non-newly incorporated companies, the Inland Revenue Department (IRD) will normally send a Profits Tax Return to the company on the first working day of April each year. These tax returns need to be filed with the Inland Revenue Department by the required deadline. Before filing a tax return, the company needs to prepare the relevant financial statements and documents required for tax filing.

Hong Kong companies do accounting and tax declaration - how to determine whether your company can zero tax declaration (operating and non-operating norms)

Hong Kong companies that do not operate can directly enjoy zero tax return, and companies with operations need to do accounts before they can file tax returns. Of course, in a sense, as long as you are buying or selling or doing business in the name of a company, it is considered an operational business. If it is judged from the following aspects, it can be judged from the following aspects, and one of them is an operational business:

1. The company has left operational records in its bank account;

2. The company has left import and export records in government customs and logistics companies;

3. The company has a purchase and sale relationship with Hong Kong merchants;

4. The company employs employees in Hong Kong;

5. The company is allowed or authorized to use patents, trademarks, designs and other information in Hong Kong;

6. The company is allowed or authorized to use movable property in Hong Kong to collect rent, lease fees, etc.;

7. The company entrusts it to sell in Hong Kong;

8. Other profits derived from or arising from Hong Kong.

Introduction to the main types of taxes in Hong Kong

1. Profits Tax (Corporate Income Tax): Assessable profits (other than profits derived from the sale of capital assets) arising in or derived from Hong Kong derived from a trade, profession or business carried on in Hong Kong are subject to tax. The current profits tax rate is 16.5%.

2. Salaries Tax: Salaries Tax is equivalent to the domestic individual income tax, which is based on the income of individuals arising in Hong Kong / derived from Hong Kong in the current year, including wages, allowances, bonuses, directors' remuneration, etc. obtained from Hong Kong.

Hong Kong tax incentives

With effect from the year of assessment 2018/19, the two-tiered profits tax rates regime will be implemented for Hong Kong companies from 16.5% to 8.25% for the first $2 million, i.e. half of the profits tax rate, and subsequent profits will continue to be assessed at the standard rate of 16.5%.

Introduction to Offshore Exemptions

Hong Kong adopts the territorial source principle, i.e. only profits derived from Hong Kong are taxable in Hong Kong, while profits derived from other places are not subject to profits tax in Hong Kong. In short, even if a limited company is incorporated in Hong Kong, if the company's business profits are not derived from Hong Kong, the company can apply to the Hong Kong Inland Revenue Bureau for "offshore income" at the same time to be exempted from Hong Kong profits tax when filing Hong Kong profits tax.

The determination of the source of profits is determined on the basis of the facts of the case, and there is no general rule that can be applied to all different situations. Whether profits arise in or are derived from Hong Kong is determined by the nature of the profits and the nature of the transactions in question of which they arise.

Therefore, the Hong Kong Inland Revenue Bureau has no clear regulations on what kind of tax arrangements should be made by Hong Kong companies in order to fully comply with the profits tax exemption requirements of "offshore income".

Basic requirements for offshore exemption applications

1. Neither the supplier nor the customer is a Hong Kong businessman;

2. The order signing process does not take place in Hong Kong;

3. The goods have not been declared, received and shipped in Hong Kong;

4. Not having a physical office in Hong Kong and employing Hong Kong staff;

5. There is no business record in the Hong Kong government, etc.

Number and interval of applications

As long as your business has not changed, it is the usual practice of the Inland Revenue Department (IRD) to apply for offshore exemption once, and you do not need to apply for it every year.

If the application is successful, the tax bureau will consider your company to be offshore in the following years, and will review it from time to time, according to our experience, it can be as short as once every two years or as long as more than 10 years.

If there is a change in your company's business in a certain year, as long as it is clearly written in the audit report and tax return, the tax bureau will issue another letter to inquire about the offshore nature of the new business, which is equivalent to the need to re-apply for offshore exemption.

The type of business and key documents for which the offshore exemption is being applied

Trading company

1. Organizational structure of the company: including employee name, position, and responsibilities;

2. Product: what product is bought, product list;

3. Purchase and sales: the method of finding and negotiating between the supplier and the customer (e.g. mail bargaining), the place where the contract is signed and the person in charge, whether it is a Hong Kong company or an affiliated company (if applicable), the transaction amount, name, address and the staff in charge of your company (business trip location, time, business trip bill, etc.), inventory location (if applicable), all transaction agreements, invoices, contracts, customs declarations or receipts and invoices, letters of credit, insurance, transport documents, e-mails, faxes, etc.;

4. Payment method: T/T, cash exchange, letter of credit or other channels.

 Service revenue

1. Organizational structure of the company: including employee name, position, and responsibilities;

2. Service content, service staff (business trip location, time, business trip bills, etc.), service location (for the core requirements of judging the source of income, the more specific the better, and with documents to prove the best);

3. Information of the person paying the service fee: name, address, contact information with the company, etc.;

4. Service contract and invoice: the staff who signed it, when it was signed, the place where it was signed, the method of signing (such as mail), etc., and the standard for calculating service fees;

5. Subcontractor (if applicable): name, address, standard and amount of payment, service content, location, etc.;

6. Hong Kong bank account information.

 Project income

1. Organizational structure of the company: including employee name, position, and responsibilities;

2. Project location, project nature, project progress report, customer's name, address, etc.;

3. Project contracts, invoices, project income schedules, settlement methods, etc.;

4. Subcontractor (if applicable): name, address, amount of subcontract, content and location of subcontract provided, etc.;

5. Travel itinerary of directors or employees (business trip location, time, business trip bills, etc.);

6. Hong Kong bank account information, payment methods, etc.