Jurisdiction
Hong Kong
A common law jurisdiction that taxes on source rather than on residence. Profits earned outside Hong Kong can fall outside the net entirely, which is the reason it is used and the reason the claim has to be made properly.
- Law
- Companies Ordinance (Cap. 622)
- Regulator
- Companies Registry; Inland Revenue Department
- Common vehicle
- Private company limited by shares
- Basis of tax
- Territorial: source, not residence
- Profits tax
- 8.25% on the first HKD 2m, 16.5% above; one group company may claim per year
- Audit
- Mandatory annually, by a Hong Kong practising accountant
- Annual return
- Within 42 days of the incorporation anniversary
- Controllers register
- Kept at the registered office, not filed, produced on demand
What it is good for
Territorial taxation. Hong Kong taxes profits arising in or derived from Hong Kong, not the worldwide profits of a company that happens to be registered there. Where the profit-generating activity genuinely happens elsewhere, an offshore claim can bring the rate to nil.
A low rate where tax does apply. Profits tax runs at 8.25 per cent on the first HKD 2 million of assessable profits and 16.5 per cent above that. Only one company in a group of connected entities may claim the two-tier rates in a year of assessment, and the group elects which.
Depth. Banking, professional services and dispute resolution are all mature, and a Hong Kong company is understood across Asia without explanation.
What it asks of you
An audit, every year, by a Hong Kong practising accountant, before the profits tax return can be filed. This is not optional for a private company and it is the single largest recurring cost for a small holding entity.
An annual return to the Companies Registry within 42 days of the anniversary of incorporation. The fee is HKD 105 filed on time and rises in steps to HKD 3,480 once it is more than nine months late.
A significant controllers register, kept at the registered office. It is not filed with the Registry, but it must exist and be produced to law enforcement on demand.
The offshore claim, and what narrowed it
An offshore claim is a position taken with the Revenue, supported by evidence about where the profit-generating operations happened. It is not a box on a form and it is not permanent: it can be reviewed, and a claim made on thin facts is a liability rather than a saving.
The foreign-sourced income exemption regime, in force since 1 January 2023, narrowed this for passive income specifically. Where an entity within a multinational group receives foreign-sourced dividends, interest, disposal gains or intellectual property income in Hong Kong, exemption now depends on demonstrating adequate economic substance in Hong Kong: real people, real premises and real decision-making, in proportion to the income.
The practical consequence is that a Hong Kong company holding investments for a group, with no staff and no office, is in a materially worse position than it was before 2023, while a Hong Kong company doing actual work outside Hong Kong is largely unaffected.