This is our correspondence with our customer, we advise him on the Tax system in Hong Kong.
My business operations are all outside of HK (the HK company outsources to my Singapore company), so I would like to claim for offshore profit. I would like someone who has experience with this to advise me on what documentation I need to have, how should the contract/invoices be written, etc, so that the offshore profit claim can proceed smoothly when the time comes.
Hong Kong tax system is based on a principle of ‘Source’ or ’Territorial income’. If all the income are generated outside Hong Kong, then it will not be subjected to HK tax.
For trading, there are 4 main criteria that the company must fulfill:
1. Where the central management is?
2. Where and how the sales and purchases contracts are negotiated and concluded?
3. How the shipping are arranged?
4. How is the financing arranged?
For 1, we can proof this by providing the passport of the directors. Short term visits to HK is absolutely O.K.
For 2, we need to provide the correspondences (emails and faxes) between the company (all responsible staff in singapore) and customers and between the company and suppliers. No need to have the hardcopies until the Tax Authority request for the documents.
If there is any sales and purchases contracts/ pro-forma invoices, we can also provide to the Tax Authority.
For 3, we need all the shipping documents including bill of lading for the places of loading and destination outside HK.
For 4, using the banks in Hong Kong to receive and pay out $ is absolutely fine. BUT, any bank borrowing may likely trigger the income as being generated from Hong Kong.
For services/ agency/ commission income, it will be a bit simpler. There are 3 criteria:
1. Who is the customers?
2. Where and how the contracts are negotiated and concluded?
3. Where the services are being rendered?
For 1, it is important that the customers are overseas companies.
For 2, it is important that the contracts are being negotiated and concluded outside Hong Kong. Where the services to be provided must state clearly in the contracts.
For 3, (the most important), the services must be rendered outside Hong Kong. We need to provide the correspondences which can demonstrate all the services are rendered outside Hong Kong.
I hope the above will give you a clear picture of offshore claim.
If you have any questions, pls feel free to contact me.
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