Hong Kong taxes profits sourced in Hong Kong. That sentence is simple; gathering evidence that your profits are not is not.
What “territorial” means in practice. The Inland Revenue Department (IRD) tests where the profit-generating operations took place. Contracts signed offshore but executed in Hong Kong often fail an offshore claim.
Building a real case. Document where sales are negotiated, where goods title passes, where IP is exploited, and where staff sit. Board minutes, travel logs, and counterpart confirmations beat marketing slides.
Services and IP. For services, the IRD asks where the services were performed. For IP, the focus is on exploitation and development. Verify latest DIPN guidance.
Common mistakes. Using a PO box abroad while all executives, developers, and servers are in Hong Kong. “Round-tripping” invoices without substance.
Practical approach. Before claiming offshore, run an internal audit: operations map, people map, contracts map. If facts don’t support it, fix the facts first.
FAQ:
- Does a Hong Kong bank account make profits Hong Kong-sourced? Banking location is only one factor, rarely decisive.
- Capital gains? Generally outside profits tax if genuinely capital; characterization depends on facts. Editor’s Note: A good source analysis reads like a diary, not a brochure. Tags: Hong Kong, Territorial Tax, Offshore Claim, IRD