Claim for Profit Tax Exemption
07 March, 2016
Tax-friendly environment is without a doubt among the main advantages of setting up a company in Hong Kong.
The current rate of profit tax is 16.5%, however the company may be exempt from Hong Kong tax if the company's profit is sourced outside Hong Kong, the profit is then free from profit tax.
The offshore income claim must be submitted together with profit tax return and audited accounts after the company has commenced business, but not earlier than 18 months from the date of incorporation. Inland Revenue Department will review the claim and may request additional information. They issue an offshore claim queries letter requesting information such as:
- Passport copies of the company directors
- An org chart and details of the company's establishment in Hong Kong and overseas, if any. This should include the location and size of offices, number of employees and their respective names, post titles, duties and remuneration package.
A detailed description of the functions carried out by the company. For each activity also specify:
- How the income concerned was negotiated
- How the partied on both sides were contacted
- How the service agreement was prepared and signed
- Copy of the relevant agreement with each of the service fee payer
In respect of each service fee payer, details of the following:
- The name and address of the payer, and its relationship with the company, its directors and shareholders
- The type of services being rendered
- The name and address of the corresponding party
- The basis of computing the service fee
A full indexed set of documents for the largest amount of transaction, including:
- Correspondence of negotiation with the parties
- The relevant agreement
- If the company has derived income from related companies/parties, provide the following additional information such as type of services, service fee, volume of transactions.
The reply letter to IRD should be submitted within one month from the date of the letter or you can apply for extension.
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