A company’s business in Hong Kong but derives profits from outside Hong Kong is not required to pay tax in Hong Kong on those profits. Profits tax is not applicable to profits whose source is outside Hong Kong.
Therefore, the location of company’s activities take place is the key to decide if the company’s profits are taxable in Hong Kong. If profits are earned from activities that take place entirely outside of Hong Kong, then these profits would not be taxable in Hong Kong even if the company’s transactions are carried out through the company’s Hong Kong bank account. The profit can be derived from normal sales and purchases of commodities and services income.
The question of locality of profits is a hard, practical matter of fact. Whether profits are derived from Hong Kong depends on the nature of the profits and of the transactions which give rise to such profits.
The place where the day-to-day business decisions take place is only one of the factors to consider in determining the source of profits. However, it is not generally the deciding factor. The most important key is the source of profits from trading in goods and commodities is the place where the contracts for purchase and sale are negotiation, conclusion and execution of the transactions.
Proxy will carry out an operation test on the client operation and routine in determining the source of profits is derived from or outside Hong Kong and to set up the proper checklist and routine procedures for client s to maintain proper records for supporting the claim.
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