How to Take Advantage of Tax Exemptions in Hong Kong

Hong Kong is globally recognized as an international business hub.

Thousands of trading companies, professional services firms, and multinationals are registered annually in Hong Kong.

The city has the right facilities and resources for individuals and corporations seeking an overseas destination for their businesses. 

While there are numerous reasons why companies register in Hong Kong, the city has attracted many foreign investors seeking to hold their assets offshore because of its low tax rate and tax exemptions. 

If you’re wondering how to take advantage of the tax exemptions in Hong Kong, keep reading to find out. 

Is Hong Kong tax-free?

Hong Kong is widely recognized as a tax haven by investors.

The city does not impose capital gains tax on the value of disposed assets or charge value-added tax or consumption tax on goods.

Import duties are also low and levied on a few goods. 

However, Hong Kong is not tax-free as individuals and companies are required to pay income tax on their taxable income.

The good news is the corporate income tax rate in Hong Kong is between 8-16.5 percent which is lower than the tax rates in most jurisdictions. 

But unlike many jurisdictions, taxable income in Hong Kong is restricted to profit derived from trading activities or businesses conducted in Hong Kong.

This has presented growing and large organizations with a juicy benefit – offshore tax exemption. 

Offshore tax exemption in Hong Kong and how to take advantage of it

An offshore company is a company set up in a country other than where its shareholders are domiciled or where its parent company is registered.

Offshore companies may conduct business in that country or not.

Many offshore companies are asset-holding companies that do not derive any profit or engage in any business in those offshore countries. 

In Hong Kong, offshore companies that do not conduct business in Hong Kong or derive profit from Hong Kong are eligible for tax exemptions.

Many foreign companies benefit and maximize profit from the offshore status conferred on foreign companies in the city.

If you’re thinking of registering an offshore company in Hong Kong or wondering how your offshore company can take advantage of the offshore exemption status in Hong Kong.

Here are two simple steps to follow:

Step 1: Register your offshore company

Registering your company is the first step you must take to become eligible for offshore tax exemptions.

Luckily, you can register your company digitally with us in less than 48 hours and you do not have to visit Hong Kong to do so. 

You can register your company with a new name or use your company’s name as long as the name is available.

Your company’s directors and shareholders can be foreign individuals or foreign entities.

But, you’ll need to appoint a qualified and licensed company secretary which must be either a Hong Kong resident or a firm with a TCSP license.

Alternatively, you can appoint a digital company secretary and let them take care of it for you.

Step 2: Apply for offshore status with the Internal Revenue Department (IRD)

An offshore company seeking to claim tax exemption must apply for offshore status with the Hong Kong Internal Revenue Department (IRD).

The IRD issues tax exemption letters to eligible companies. 

These tax exemption letters are popularly referred to as offshore claims.

Only companies with offshore claims can claim tax exemptions in Hong Kong.

The good thing is, the process of obtaining an offshore claim is quite straightforward. 

When to apply for offshore status in Hong Kong

There is no deadline for applying for offshore status in Hong Kong and a company that has been registered for years can still apply.

It is however advisable to submit your application within the first 18 months of the company’s incorporation. 

Newly incorporated companies in Hong Kong are required to file profit tax returns within 18 months of being registered. You’ll need to submit your profit tax returns with your application.

Therefore,  if you want to claim tax exemptions on profit achieved within your company’s first years of incorporation, you’ll have to report it.

How to apply for offshore status in Hong Kong

To apply for offshore status in Hong Kong, you’ll need to file your profit tax returns and supporting documents.

The supporting documents usually include expense receipts, invoices, award letters, and other documents that prove that your company’s income was not derived from Hong Kong.

You’ll also need to submit your incorporation documents along with your application. 

Once you’ve submitted your application, the IRD will consider your application. This typically takes less than 6 months.

To improve your chances of getting your application approved, it is advisable to consult a certified public accountant (CPA) in Hong Kong. 

You can reach out to us for your offshore status application.

Our team of accountants can advise you on your options and make your application process stress-free. 

Are all offshore companies eligible for tax exemptions in Hong Kong?

Not all offshore companies are granted offshore claims by the IRD as the IRD can approve or reject applications for offshore status.

This is because not all offshore companies are eligible for tax exemptions in Hong Kong. 

Only offshore companies capable of proving that their income was derived exclusively from locations outside Hong Kong are eligible for offshore tax exemptions in Hong Kong.

The IRD requires offshore companies seeking offshore tax exemptions to prove that they do not conduct business in the region or derive any income from the region.

Companies are required to answer questions and provide supporting documents to prove this. 

Can onshore companies claim tax exemptions in Hong Kong?

Any company set up in Hong Kong can claim tax exemptions in Hong Kong on any part of its income that was not derived from Hong Kong.

Therefore, an onshore company can claim tax exemption if part of its income was derived outside Hong Kong. 

However, it is important to note that this is a partial exemption as the onshore company will still be required to remit income tax profit derived from Hong Kong.

Many companies have benefitted from Hong Kong’s low-income tax rate and tax exemptions.

Setting up affiliate and subsidiary companies in Hong Kong to hold your company’s asset can help your maximize profit. 

If you’re ready to take advantage of tax exemptions in Hong Kong, we’re ready to help you achieve your investment goals in Hong Kong.