Many domestic entrepreneurs may choose to incorporate a Hong Kong company to operate their international business for a variety of reasons, not least of which is that the profits of Hong Kong companies originating outside Hong Kong are not subject to Hong Kong profits tax. It is therefore important to determine whether profits originate in Hong Kong or outside of Hong Kong (i.e. offshore).

The core condition of offshoring is that profits earned by Hong Kong companies do not take up Hong Kong resources. Specifically, it depends on the business type and business model of the enterprise, which generally includes but is not limited to:

1The Hong Kong company does not deal with other Hong Kong companies. For example, the customer is a US company and the supplier is a Chinese mainland company;

2, the goods in the transaction have not been transported through Hong Kong, or have passed through Hong Kong but have not been stored in a Hong Kong warehouse but have been transshipped immediately;

3The purchase of the goods is not financed by a loan from a Hong Kong bank;

4The directors of the Hong Kong company are not Hong Kong;

5An employee of a Hong Kong company who is not in Hong Kong;

6The office address of the company is not in Hong Kong;

7The preparation, signing and execution of trading contracts are outside Hong Kong;

8An employee of a Hong Kong company has not entered Hong Kong on official business ······

How can you prove to the assessor of the Hong Kong Inland Revenue Department that your Hong Kong company meets the above offshore conditions? It is essential to prepare detailed information on representative transactions, i.e., the two largest sales transactions with the largest customers in the year of assessment, with full chronological and indexed documentation, including: Purchase and sale agreements, purchase and sales orders, order confirmations, correspondence (letters, faxes, e-mails), invoices, letters of credit, shipping and insurance documents, etc.

Only when the materials are fully prepared and it can be proved that the profits obtained by the Hong Kong company have nothing to do with the resources in Hong Kong, can the offshore claim be successful. Therefore, after the company is registered in Hong Kong, it is better to retain the relevant business vouchers in the operation process of the company, so as to improve the success rate.

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