The Ultimate Tax Strategy Guide – 6 Principles in Offshore Tax Exemption in Hong Kong

by Cheap Incorporation | September 19, 2023

Hong Kong is famous for its territorial tax concepts in the Global Taxation System. It is also the fundamental to the success of being a Global Business Hub. 

What is the secret recipe? The Hong Kong Government only collect profits tax from the companies generating profits derived from or arise in Hong Kong. No more no less. If you are operating your company outside, you should bookmark this articles and read it again every year.

In this article, we will take a deeper look on the territorial tax concepts. Let’s start with the 6 basic principles about the offshore tax exemption in Hong Kong. Hong Kong adopts a Common Law System and has a long history for the Courts in Hong Kong and United Kingdom to establish the case law. Over the years, the Court has set out 6 principles in helping you and me to determine the source of the profits. By studying so, you will have an idea on how to operate your business towards a successful claim for your offshore tax exemption application.

1. Matter of Fact

There is no single rule to govern all the situations. Every tax situation is unique and it shall be based on the facts presented before your auditor and the Tax Department. It is all about the nature of the Profits and how the transactions being performed during the ordinary course of your business. Hence, the determination is rather straightforward and sticking to the fact in the eyes of the Inland Revenue Department in Hong Kong.

2. The Operation Test

In this principle, we focus on what you have done to generate your company profit and where you have done it. It is very important to identify how and where the operations occurred for all profits-generating activities. If you do not have the offices, suppliers and staff in Hong Kong, it’s worry-free toward this operation test.

3. Antecedent or incidental activities

It is all about the geographical location of your profits-generating activities which should be distinct from the activities antecedent or incidental to those transactions.

4. Place where decision is made

The location of your daily investment or business decisions is crucial but definitely not the dealbreaker in your offshore tax claim.

5. Gross profits from transactions

To determine whether it is a Hong Kong profits or offshore profits, the Tax Department will look at the gross profits from the individual transactions. 

6. Business presence overseas

Your business address, where you are operating your business from, is a very important factor. The business address here is not about your registered address in Hong Kong. It should be your principal place of business, that is the place you reply your clients, your staff seat and work and you put your inventories. In most of the cases, if your business address is an oversea address, you will have no problem to pass this test.

The Takeaway from The Ultimate Tax Strategy Guide

At the end of the day, location, location and location is the key to your success in offshore tax claim for your Hong Kong company. You should keep your operation office, management office, employees, suppliers and customers outside Hong Kong. If you have Hong Kong clients, you should just start a brand new company to cater those demands from Hong Kong.

After reading our ultimate tax guideline, I am sure you have tons of questions. Don’t worry! feel free to reach out to our Incorporation Specialist at

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