Claim for Profits Tax Exemption, Hong Kong Company

Hong Kong is famous for its tax-friendly environment. One of many advantages is that only profits derived from Hong Kong are chargeable to Profits Tax. The current rate is 16.5%. If your Hong Kong company’s profit is sourced elsewhere, the profit is then free from profits tax.

The claim for offshore income must be submitted together with audited accounts and profits tax return after the business has been commenced and not earlier than 18 months from the date of incorporation. Inland Revenue Department will issue an offshore claim queries letter requesting additional information such as:

• An org chart and details of the company’s establishment in Hong Kong and overseas, including the location and size of the company’s offices, number of employees and their respective names, post titles, duties and remuneration package.
• A detailed description of the functions carried out by the company in order to ear the income concerned. For each of the identified activity, specify the name of the responsible person and the place where such activity was performed:
  • How the partied on both sides were contacted
  • How the income concerned was negotiated
  • How the service agreement was prepared and signed
• Copy of the relevant agreement with each of the service fee payer
• In respect of each service fee payer, details of the following:
  • The name and address of the payer, and its relationship with the company, its directors and shareholders
  • The type of services being rendered
  • The name and address of the corresponding party
  • The basis of computing the service fee
• A full indexed set of documents for the largest amount of transaction, including:
  • Correspondence of negotiation with the parties
  • The relevant agreement
• If the company has derived income from related companies/parties, provide the following additional information:
  • The type of services being rendered
  • Whether the level of service fee charged to the unrelated parties of similar line of business is different from that charged to the related companies/parties. If this is the case, specify the basis of calculation and the reasons for the differentiation
  • The relative volume/amount of transactions with the related companies/parties during the captioned year of assessment as compared to those with unrelated parties, if any
• Passport copies of the company directors

The reply letter to IRD should be submitted within one month from the date of the letter. Startupr can help you to prepare the tax replies to queries and submit it to the IRD. Once all requested information are reviewed by the IRD commissioner, the confirmation is issued and the company’s profit is not a subject to HK tax.

Startupr Hong Kong Limited