The territorial concept of taxation in Hong Kong recognises that a Hong Kong business may generate profits from different geographical sources. Only profits sourced in Hong Kong may be subject to profits tax (15% on assessable profit). Profits sourced outside Hong Kong are possibly not taxable.
However the distinction between onshore and offshore profits is often an issue disputable between taxpayers and the tax authority in Hong Kong, the Inland Revenue Department (“IRD”). As there are no comprehensive definitive legal rules in this area, courts in Hong Kong have given the following general case law guidelines over the years:
|
Kinds of Profits |
Location of source |
|
Service Profit |
Where services are performed |
|
Manufacturing Profit |
Where manufacturing activities are conducted |
|
Trading Profit |
Where sale and purchase contracts are effected |
|
Profits from sale of (or rental income from) land and building |
Where the land and building situate |
|
Interest Profit |
Where the deposit or loan is first made available to the borrower |