Profits Tax

There is no VAT, no tax on capital gains, on dividend or interest income in Hong Kong. The only kind of tax for a HK company is profits tax. Many countries establish their taxation principles on a different basis, and they tax worldwide profits of a business, including those derived from offshore sources. Hong Kong profits tax is charged only on profits derived from a trade, profession or business carried out in Hong Kong. This means that a company which carries on business in Hong Kong, but derives profits from another place, is not required to pay tax in Hong Kong. Profits Tax currently is at 17.5% on its assessable profits.

Normally, the HK Inland Revenue Department is selecting some transactions to ascertain whether profits from them should be subject to HK taxation. They can request to review all the documents relating to these transactions to ensure that all the company's operations are conducted outside HK. Therefore it is recommended for HK companies to keep all documents and correspondence for all the transactions.

A company can submit a claim for offshore income together with its audited accounts and profits tax return, after it has commenced business and not earlier than year one and a half from its incorporation date. However, it should be noted that any HK involvement will increase the possibility of being subject to HK taxation.