Hong Kong profits tax is ONLY charged on profits derived from a trade, profession or business carried on in Hong Kong. Consequently, this means that a company which 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.
Hong Kong sourced income is currently subject to a rate of taxation of 16.5 per cent. There is NO TAX in Hong Kong on capital gains, dividends and interest earned.
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. The term “Effected” does not only mean where the contracts are legally executed, it also covers the negotiation, conclusion and execution of the terms of the contracts.
If a business earns commission by securing buyers for products or by securing suppliers of products required by customers, the activity which gives rise to the commission income is the arrangement of the business to be transacted between the principals.
The source of the income is the place where the activities are performed. If such activities are performed in Hong Kong, the income has a source in Hong Kong.
Consequently, if a Hong Kong company’s trading or business activities are based outside Hong Kong, say in China, USA, Europe etc. no income tax will be levied in Hong Kong. This makes Hong Kong an extremely cost- effective tax planning vehicle for trading.