14 August 2015


Hong Kong adopts a territorial source principle of taxation. Only profits which have a source in Hong Kong are taxable here. Profits sourced elsewhere are not subject to Hong Kong Profits Tax. The territorial concept has always been fundamental to the taxation of profits tax in Hong Kong.

Hong Kong's basis of taxation on profits from businesses

Hong Kong adopts a territorial basis for taxing profits derived from a trade, profession, or business carried on in Hong Kong. Profits Tax is only charged on profits which arise in or are derived from Hong Kong. In simple terms this means that a person who carries on a business in Hong Kong but derives profits from another place is not required to pay tax in Hong Kong on those profits.

Basic principles for determining the source of profits

The Courts have over the years considered the subject of the source of profits. The following principles have emerged from authoritative court decisions – :

Commission Income

A Hong Kong company provides services partly in Hong Kong and partly outside Hong Kong. It may be possible to claim that part of the service income is attributable to the services rendered outside Hong Kong and therefore not taxable.

Trading Profits

The factor that determines the locality of profits from trading in goods and commodities is generally the place where the contracts for purchase and sale are effected. A Hong Kong company negotiates and concludes the terms of the purchase and sale contracts with suppliers and customers outside Hong Kong and also carries out the relevant operations outside Hong Kong. It may be possible to claim that the trading profits so derived are non-taxable in Hong Kong.

ALCPA can assist you on reviewing your current operations for the possibility of making an offshore tax claim. ALCPA can also assist you on restructuring your company, gathering evidence to handle and support your claims with the Inland Revenue Department.

Should you require any assistance in relation to filing of Hong Kong tax return, please do not hesitate to contact us.



  Derrick Liu
  (852) 2574 8289 (Ext. 121)

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