Offshore Tax Exemption in Hong Kong – All You Need to know

Are you planning to set up an international business? If you sell to customers globally, Hong Kong remains one of the most attractive hubs for entrepreneurs. Known for its financial autonomy and autonomy from Mainland China, it is the ideal jurisdiction for international trade, investment, and asset protection.

Taxation in Hong Kong: The Basics

Hong Kong is world-renowned for its simple and low tax structure. Unlike many other jurisdictions, there is no capital gains tax, no VAT/GST, no withholding tax on dividends or interest, and no estate duty.

Since 2018, Hong Kong has used a Two-Tiered Profits Tax Rates Regime:

• 8.25% on the first HKD 2 million (approx. USD 250,000) of assessable profits.
• 16.5% on any profits above that amount.

The Territorial Principle: Pay 0% Tax on Overseas Income

The most significant advantage of Hong Kong incorporation is the territorial source principle. A Hong Kong company is generally only liable for tax on profits derived from or arising in Hong Kong.

Foreign-sourced income is exempt from tax. If your company operates outside of Hong Kong but receives funds into a Hong Kong bank account, you may still qualify for a 0% tax rate on those offshore profits.

What is Offshore Tax Exemption in Hong Kong?

Once you understand taxation in Hong Kong, the next thing you should know is the offshore tax exemption in Hong Kong. When you carry out your business activities entirely outside of Hong Kong, then your business qualifies for Offshore Profits Tax Exemption. A profits tax exemption is granted by the tax authority under the Inland Revenue Department (IRD) of Hong Kong.

To better understand this, here are some examples of activities that would qualify for the offshore profits tax exemption:

• The company has no customers or suppliers for its business in Hong Kong.
• The owner or the employees of the business entity operate their business solely outside of Hong Kong.
• The company provides no services in Hong Kong.
• The business entity signs and negotiates with its suppliers and customers outside of Hong Kong.
• The company’s products do not enter Hong Kong.
• The company has no employees based in Hong Kong, and the owner or any overseas employees rarely visit Hong Kong.
• Important Update (2026): If your company receives passive income (such as interest, dividends, IP income, IP disposal gain or Non-IP disposal gain ) from offshore, new FSIE (Foreign-Sourced Income Exemption) rules may apply. You must meet “economic substance” requirements to maintain the exemption on these specific types of income.

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Profit Types Exempted from Hong Kong Taxation

Now that you have an idea about taxation in Hong Kong and the concept of offshore tax exemption in Hong Kong, the next thing you need to know about is how this applies to each of the different types of businesses.

• Manufacturing Profits

The Hong Kong manufacturing business enters into a contract processing or assembly arrangement with an entity which is located elsewhere, similar to an arrangement with the entity itself. The Hong Kong manufacturing business would provide the raw materials, management, technical know-how, training and supervision for the locally recruited labor. It might be possible to claim 50% of the manufacturing profits are not taxable in Hong Kong.

• Trading Profits

The Hong Kong companies negotiate and settle the terms of the contracts with customers and suppliers outside of Hong Kong. More importantly, the companies carry out the operations outside Hong Kong. So, these companies can claim that the trading profits so derived are non-taxable in Hong Kong.

• Service Income

The Hong Kong company provides services outside of Hong Kong. If so, then the profits derived from these services rendered would be considered for offshore tax exemption. In fact, several Hong Kong companies appoint service providers or overseas agents in order to perform services on its behalf outside Hong Kong. It may be possible to claim that the entire service income relating to the services rendered outside Hong Kong is not taxable.

How to Claim an Offshore Tax Exemption and Required Documents?

The claim for offshore tax exemption is lodged together with the submission of the Profits Tax Return(PTR) and Audit Report. The Inland Revenue Department of Hong Kong normally issues profits tax returns in April, immediately after the end of the fiscal year of assessment. If you own a newly incorporated company in Hong Kong, then the first profits tax return notice will be issued by IRD 18 months after the date of incorporation.

You need to submit the following documents with the profits tax return to IRD.

• Completed Profits Tax Return
• Auditor’s Report
• Tax computation claiming offshore tax exemption, if applicable.

There may be a chance that the IRD will ask the business entities to provide additional documents and information in order to support an offshore tax exemption claim. In fact, the IRD can also select the company transactions and recheck whether the activities involved in these transactions were taken place offshore.

Hence, it is always advisable to maintain all the records to show that all the transactions and activities of the company took place outside of Hong Kong. The documents can include-

• memos of meetings with customers and suppliers
• organization chart showing the location of the offshore operation
• travel receipts & passport copies showing locations and dates of visit
• purchase orders, sales orders, and shipping documents
• Itemized telephone bills, emails, and faxes showing to which numbers calls are made to clients/suppliers

Offshore Profits Tax Advice

If you are still unsure how to claim tax exemption for your offshore profits, or if you will be able to get an offshore claim, look no further. We have years of experience in handling companies doing business outside of Hong Kong, and how to handle their offshore profits tax cases.

At Startupr we can provide you with crucial information on the rules and regulations around offshore tax exemptions, and review the case for your company.

How can Startupr help you?

Hong Kong companies enjoy many benefits, such as limited liability, complete foreign ownership, access to the China Mainland and other Asian countries, low taxation, shareholder privacy, fast registration, and low required share capital. And if you have incorporated your business in Hong Kong and are wondering if you can apply for offshore tax exemption, then it is always better to hire a professional in order to complete all the documentation and provide advice for your company’s activities.

We at Startupr can assist you in reviewing your current operations to ascertain the possibility of making an offshore tax claim. And if your business transactions are outside of Hong Kong, you can apply for offshore tax exemptions from the IRD, and once the accounting is audited, you should submit all the information of tax exemption query letter to the IRD. In fact, we have over a 98% success rate for tax exemption status for our clients, for those conducting their activities outside of Hong Kong.

Check out more information about offshore tax exemptions in Hong Kong in the coming articles.

Last update: March 2026